China’s Non-Compliant Margin Debt is Small, Securities Body Says

China’s forced liquidation of margin lending through non-brokerages is “small” as a percentage of stock turnover, according to the nation’s brokerage association.

The outstanding balance of margin debt through three major non-brokerage channels including the HOMS and the Hithink Flush Information Network totaled about 500 billion yuan ($80.6 billion), the Securities Association of China said in a statement on its website Tuesday. Forced sell-off of stocks purchased with borrowed money reached 15 billion yuan via HOMS over the past two weeks, the industry body said, without providing data on the other two systems.

Concern that the government will clamp down on margin trading spurred the biggest two-week loss for the Shanghai Composite Index in 18 years and ended the benchmark gauge’s longest bull market. The Shanghai gauge rebounded 5.5 percent Tuesday on speculation the government is considering a raft of supportive measures, including a possible cut in the stamp duty tax on stocks and delaying new share offerings.

“The latest comments by the Securities Association of China showed an intention to further appease the market and prevent worries over stock financing from spreading further,” Chen Jiahe, a Shanghai-based strategist Cinda Securities Co., said by phone. “Panic selling may have come to an end after the recent correction.”

— With assistance by Shidong Zhang

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