China to Stress Test Securities Firms After Stock-Market Slump

  • Tests to spot hidden problems and prevent systemic risks
  • Chinese stocks plunged 43% from June peak in summer rout

China will conduct stress tests on its securities industry, after violent swings in equity prices during the summer stock rout raised concerns about the strength of the market infrastructure.

The stress tests will cover institutions including brokerages, asset managers and futures companies, Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission, told reporters in Beijing on Friday. The tests will assess the institutions’ risk-management capabilities, identify hidden problems and seek to prevent systemic risks, he said.

The securities regulator will work with industry associations to conduct the tests, which will examine risk indicators of the companies and their products in “extreme scenarios” where prices of stocks, bonds and futures experience fluctuations and when defaults rise substantially, Zhang said.

The Shanghai Composite Index surged 60 percent from the start of the year to its June 12 peak amid a debt-fueled rally before plunging 43 percent as concerns mounted about the health of China’s economy.

— With assistance by Aipeng Soo

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