Margin trading ready at last

The system of margin financing and short sale of securities stems from United States and plays a role in discovering and stabilising the price in a securities market. Under a perfect market system, overwhelming stock jobbing and gambling in the market causes the price of a stock to increase greatly; investors may sell the stocks, by securities financing, to make the price fall. Otherwise, when the price of a certain stock is underestimated, investors may buy the stock, by borrowing margins, to make the price rise. On the other hand, margin financing and short sale of securities is a positive way of boosting an active market, to utilise and enhance the existing capital in the market, and to enlarge the trade volume and strengthen liquidity to improve the investment function of the securities market. Until now, mainland China's capital markets have lacked a shorting-mechanism.

The amended PRC Securities Law (中华人民共和国証券法 (修订)), which came into force on January 1 2006, allows securities companies to engage in margin financing and short sale of securities. After the new Securities Law became effective, the China Securities Regulatory Commission (CSRC) gradually set up the system, by issuing the Administration of Pilot Project for Securities Companies' Engaging in the Margin Financing and Short Sale of Securities and the Guide on the Internal Control on the Pilot Project for Securities Companies' Engaging in the Margin Financing and Short Sale of Securities (both effective on August 1 2006). The Shanghai Stock Exchange and Shenzhen Stock Exchange also issued their own implementing rules accordingly. Upon the consent of the central government in January 2010, the CSRC immediately promulgated the Guiding Opinion on Pilot Engagement in Margin Trading and Short Sale of Securities by Securities Companies (关于开展证券公司融资融券业务试点工作的指导意见). This marks the beginning of margin trading and short sale of securities.