China to Expand Short-Selling Program as Part of Reform

China will expand its short-selling program on Feb. 28 by allowing selected brokerages to borrow shares from institutional investors, the Shanghai Securities News reported.

Eleven brokerages will be able to borrow shares in a pre-approved pool of 90 publicly traded companies, according to the report, which cited China Securities Finance Corp. The state-owned agency was set up to provide securities firms with funds and stock for short-selling and margin trading.

The expansion of short-selling -- in which investors sell borrowed shares in the expectation of profiting when they fall - - will increase the efficiency of China’s equity market, help manage risks and boost brokers’ revenue, the report said.

The brokerages in the trial program are: Citic Securities Co., the biggest listed broker; Everbright Securities Co.; GF Securities Co.; Guotai Junan Securities Co.; Guosen Securities Co.; Haitong Securities Co.; Huatai Securities Co.; Shenyin & Wanguo Securities Co.; China Merchants Securities Co.; Galaxy Securities Co.; and China Securities Co.

These firms will be allowed to borrow shares from CSFC and re-lend to customers. The pre-approved pool of securities comprises 50 companies listed in Shanghai and 40 in Shenzhen, with a total market capitalization of 9.3 trillion yuan ($1.49 trillion), according to the report.

Brokerages will be able to borrow shares from CSFC for fixed periods -- 3, 7, 14, 28 and 182 days -- at different rates, the report said.

The expanded program “will not necessarily add to the selling pressure and suppress the equity market” because more brokers are participating in the margin-trading program, which allows investors to borrow money from brokers to buy shares, according to the report.

— With assistance by Jun Luo, and Feiwen Rong

Before it's here, it's on the Bloomberg Terminal.