What impact will it bring to the market?, Stock Exchange Lowers Financing Margin Ratio | Investors | Margin
On August 27th, the China Securities Regulatory Commission and the Shanghai, Shenzhen, and North China Stock Exchanges issued a notice revising the implementation rules for margin trading, reducing the minimum margin ratio for investors to purchase securities through financing from 100% to 80%. Industry insiders say that this measure will help promote the functionality of margin trading and short selling business, better meet the reasonable trading needs of investors, and further activate the capital market.
China Securities Regulatory Commission Information Chart
The margin ratio for financing refers to the ratio of the margin paid by investors when purchasing financing to the amount of financing transactions. For example, when the financing margin ratio is 100%, investors can use a margin of 1 million yuan to raise up to 1 million yuan from the securities company to buy securities. When the margin ratio for financing is reduced to 80%, customers can use a margin of 1 million yuan to raise up to 1.25 million yuan from securities companies to buy securities.
The Politburo meeting of the Communist Party of China Central Committee held on July 24th proposed to activate the capital market and boost investor confidence. On August 18th, the China Securities Regulatory Commission clearly implemented a package of policy measures to "activate the capital market and boost investor confidence".
"The adjustment of financing margin ratio this time is one of the important measures to implement the comprehensive policy measures of the China Securities Regulatory Commission." Liu Xinqi, Chief Analyst of Non Bank Finance at Guotai Junan Securities, said that the reduction of financing margin ratio will enhance investors' preference for two financing tools, facilitate the introduction of incremental funds into the market, and better boost investor confidence.
According to data released by the China Securities Regulatory Commission, as of August 24, 2023, the balance of on exchange margin trading and securities lending was 1567.8 billion yuan.
Hu Xiang, Chief Financial Analyst of Dongwu Securities, said that moderately relaxing the financing margin ratio can increase the amount of securities that can be purchased through financing with the same amount of margin, thereby effectively activating existing funds. The current scale of the two financial institutions is at a relatively low level compared to historical data, and as the market stabilizes, the incremental effect may be more pronounced.
The China Securities Regulatory Commission stated that in recent years, the margin trading and short selling business has been operating steadily, the trading mechanism has been continuously optimized, the compliance and risk control level of securities companies has been continuously improved, and investors' rational trading and risk prevention awareness have significantly increased.
"The margin ratio for financing stipulates the lower limit of the margin ratio required for fixed financing scale. In actual business operations, securities companies, under the principle of prudent risk control, often increase the actual margin ratio requirement. The ratio is related to specific customer qualifications and the securities company's own risk tolerance. The regulatory requirement for reducing the margin ratio has opened up space for financing business." Qin Peijing, Chief Strategist of CITIC Securities, said that this time, the China Securities Regulatory Commission has lowered the margin ratio on the basis of the overall controllable leverage risk of funds on the exchange, giving securities firms higher flexibility in financing scale in the two financing business, which is conducive to improving market liquidity and activity.
Several industry insiders have stated that the overall guarantee ratio of China's two financing business is at a higher level compared to other international markets, and the risk of the two financing business is at a lower level compared to other international markets. The overall risk of the business is controllable. Moderate relaxation of the margin ratio for financing is conducive to promoting the full play of the functions of margin trading and securities lending business.
According to the China Securities Regulatory Commission, this adjustment will be implemented after the market closes on September 8, 2023. The adjustment applies to both new opening contracts and existing contracts, and investors can apply the new margin ratio without the need for balance contracts.
Liu Xinqi said, "The reduction in financing margin ratio this time also applies to existing contracts, making the relevant policy adjustments benefit investors to the greatest extent possible."
"The seamless integration of the new and old policies, without any transitional arrangements, will ensure smooth and efficient implementation of the policies, which will help stabilize the short-term market and promote the healthy development of the long-term market," said Hu Xiang.
At the same time as reducing the margin ratio for financing, the China Securities Regulatory Commission also reminds investors to continue to adhere to a rational investment philosophy, and to use financing and securities lending tools reasonably based on their own risk tolerance. The China Securities Regulatory Commission will urge securities companies to effectively strengthen risk management, provide good investor services, and protect the legitimate rights and interests of investors.
