A very heavy means of attacking short sellers.
In the evening of today, the China Securities Regulatory Commission (CSRC) issued many new regulations, including increasing the margin requirements of margin trading, suspending the margin financing and securities lending business, and restricting high-frequency trading, which has caused a huge sensation. Since last year, margin financing and securities lending as well as high-frequency (algorithmic) trading have been questioned and criticized by numerous stockholders due to serious issues involving market disruption and unfair trading. The regulatory authorities have responded to market calls to introduce restrictive measures, but have never completely prohibited them. Now, with the continuous downturn of the stock market and the increasingly low confidence of stockholders, stricter measures have still come.
There are three main points: 1. Suspend the margin financing and securities lending business. Starting from July 11th, the margin financing and securities lending will be suspended. Stock collateralized financing and securities lending contracts can be extended or extended legally, but must be settled and returned no later than September 30th, 2024. 2. Raise the margin requirement ratio for margin financing and securities lending from not less than 80% to 100%. The margin requirement ratio for private securities investment funds participating in margin financing and securities lending trading is raised from not less than 100% to 120%. 3. Promote high-frequency trading speed and frequency reduction, strictly control abnormal real-time application rate, frequent real-time withdrawal, frequent lifting and pressure, and short-term large transactions and other four types of behaviors, and study and clarify standards for imposing extra traffic and cancellation fees on high-frequency trading.
In addition, in accordance with the principle of consistency between domestic and foreign capital, we will strengthen communication and consultation with the Hong Kong side, and study the ways and paths to promote the implementation of the northbound programmed trading reporting system (this is to block the quantitative trading of northbound funds through the Lu Stock Connect channel).
Among these measures, suspending margin financing and securities lending is the most crucial one, which can bring a significant advantage to the stock market. Because the margin financing and securities lending is suspended, several important quotas can be reduced (the quotas are only owned by brokerage firms and off-exchange quotas, and the sizes of these two quotas are not large). This is tantamount to catching turtles in a jar. With fewer quotas, margin financing and securities lending transactions will be reduced, which means that the power of short selling will be weakened significantly, bringing significant benefits to the long position.
Moreover, the vast majority of quantitative trading and speculative institutions manipulating stock price models are T+0 models, and margin financing and securities lending are a crucial prerequisite for this model (used to lock in the price difference between buying and selling through high and low sales or short sales and high purchases).
Of course, this will destroy some of the T+0 play methods, which will to some extent affect the trading activity of the market. But this is useful for driving the direction of making money for institutions and individual investors, namely, making money through buying only.
At the same time, looking at the current margin financing and securities lending situation in the market, the vast majority of the borrowing money is for 14 days. This means that these debts that have been borrowed out will gradually expire after more than 10 days, which will drive the rise of these stocks. Although if there is a contract, it can be extended to September 30th. But most of them will definitely return earlier.
Here are some screenshots of stocks with the largest amount of margin financing and securities lending and unused quotas for your reference:
For example, in the past month, A-share financing and securities lending has totaled 16.583 billion yuan. The increase of margin financing and securities lending was in a clear correlation with the downward trend of the stock market (before the reduction of margin financing and securities lending in 2023, the monthly margin financing and securities lending funds reached over 80 billion yuan, and later we saw a significant decline in the stock market).
What are the purposes of major shareholders or senior executives if they engage in margin trading and short selling?
Are they doing it to indirectly reduce their holdings? (For example, by arranging for someone to apply for margin trading to lock in the difference in holding price.) If that's the case, can we assume that they lack confidence in the company's future operations and development?
Are they doing it to earn a tiny amount of margin interest? If so, can we also assume that they are on the opposite side of the countless shareholders on the market? Are they giving bullets to the bears to deal with the shareholders who trust them just for a trivial profit?
If a fund engages in margin trading and short selling, what is the significance of lending its holdings to the bears through securities lending and borrowing just to earn a tiny amount of margin interest, which causes the net asset value (NAV) of the fund to fall? How can the managers justify themselves to the investors who trust them?
Apart from these, the greater destructive power of securities lending and borrowing lies in the panic and confidence collapse it brings to investors, especially under the background of current economic downturn, which is more advantageous for short selling. Securities lending and borrowing will become a major weapon to accelerate the market collapse.
If you see in a stock's information box that securities lending and borrowing are taking place every day, and the stock price is falling every day, would you still dare to buy this stock? You will definitely feel that there is a problem with it, and that there is an entity trying to short it. For example, like this:
