China to Check Brokerages’ Financing Business After Rapid Growth

China’s securities regulator will inspect some brokerages’ financing operations amid a surge in margin finance and securities lending.

The China Securities Regulatory Commission’s fourth-quarter on-site inspections of the firms will include an audit of some brokerages’ financing business, the regulator said in a statement on its microblog today. The checks are aimed at ensuring the orderly development of those businesses, it said.

Chinese equities had their wildest swings in five years this week, which have drawn attention to securities companies’ financing operations. The size of the business of lending stocks and money to clients for short-selling and margin trading surged to more than 900 billion yuan ($145 billion) this month from about 400 billion yuan in the first half of the year, stock exchange data showed.

Leveraged funds, including margin loans offered by brokerages, were “stirring up trouble” and were behind the stock market’s recent volatile performance, Xinhua News Agency wrote in a commentary on Dec. 11.

China’s stock-market rally has accelerated during the past month as the central bank unexpectedly cut interest rates and mainland investors opened new stock accounts at the fastest pace in five years.

The Shanghai Composite Index climbed 17 percent in the past month, the second-biggest gain among 93 equity indexes worldwide tracked by Bloomberg. The gauge surpassed 3,000 for the first time in three years on Dec. 8, while a measure of 10-day price swings reached the highest level since 2009 this week.

— With assistance by Aipeng Soo

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