Some Chinese brokerages have halted their short-selling businesses after the nation’s regulators tightened rules to freeze out day traders in a fresh bid to arrest a stock-market plunge.
Citic Securities Co., China’s largest brokerage by revenue, is among firms that temporarily stopped short selling by clients after the Shanghai and Shenzhen exchanges unveiled a new measure requiring investors who borrow shares to wait one day to repay the loans.
Short selling was suspended to facilitate the adoption of the rule and will resume once the system has adjusted, Citic said in a statement Tuesday. Huatai Securities Co., Guosen Securities Co. and Great Wall Securities Co. also said they have suspended the practice.
The new T+1 rule on short selling prevents investors from selling and buying back stocks on the same day, a practice that may “increase abnormal fluctuations in stock prices and affect market stability,” the Shenzhen exchange said Monday after the close of trading.
China is taking unprecedented measures to stem a stock rout that has wiped almost $4 trillion in market value since mid-June. Exchanges have frozen 38 trading accounts, including one owned by Citadel Securities LLC, as authorities probe whether algorithmic traders are causing disruptions.
On Monday, Shanghai’s stock exchange warned two trading accounts for making a “large amount of sell orders affecting security prices or volume.”
In a short sale, traders sell borrowed stock, anticipating the price will drop so they can profit by buying back the shares at a lower price.
— With assistance by Aipeng Soo