Highlights

  • China will stop lending certain shares to short sellers
  • Strategic investors will not be allowed to lend out shares during agreed lock-up periods
  • MSCI China Index has lost 60% from a February 2021 peak

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China attempts to curb stock market plunge with short selling crackdown

As the MSCI China Index has lost 60% from a February 2021 peak, the Xi Jinping government has put an halt on lending certain shares to short sellers by which strategic investors will not be allowed to lend out shares during agreed lock-up periods

China attempts to curb stock market plunge with short selling crackdown

The Chinese govt has taken steps to curb short-selling in an effort to stem the recent stock market crash. These new steps prohibit strategic investors from lending out shares during lock-up periods, effectively hindering borrowing and short selling of stocks.

“The move may have limited impact in terms of stabilizing the market” as some estimates show that such security lending balance is of insignificant size," Willer Chen, senior analyst at Forsyth Barr Asia, told Bloomberg. “Still, this is a good gesture as market participants had been calling for regulators to step in on this front.”

Downward spiral of Chinese stocks

The MSCI China Index has lost 60% from a February 2021 peak, following which authorities are taking measures to correct the stock markets. Last October, limits were put on the lending of shares that executives and other key employees get in strategic placements along with other curbs. Since then, the outstanding value of stocks lent by strategic investors has dropped 40%, the CSRC said Sunday.

MSCI China gained for the first time this week since the start of the year, trimming its loss to about 7%. This after the central bank announced an imminent reserve requirement ratio cut and plans for targeted stimulus


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