China Brokers Fall as Regulator Curbs New Margin Accounts

Chinese brokerages’ shares plunged after the securities regulator suspended three of the biggest firms from adding margin-finance and securities lending accounts for three months following rule violations.

Citic Securities Co., the nation’s biggest broker, fell 14 percent as of 9:35 a.m. in Hong Kong. Haitong Securities Co. and Guotai Junan Securities Co. were among others whose shares tumbled.

The trio were suspended after letting customers delay repaying financing for longer than they were supposed to, the China Securities Regulatory Commission said on its microblog on Jan. 16, without giving more details.

Regulators may have been concerned that stock gains, partly driven by margin financing, are too rapid, according to Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong. The move came after the Shanghai Composite Index surged 63 percent in six months and brokers including Citic and Haitong announced plans to raise more money to lend to clients.

“Brokerage shares are likely to get hit,” Hong said before the market opened today. “After all, margin financing is one of the reasons for people to be bullish on brokerage stocks, and these stocks have run particularly hard.”

Citic and Haitong, the nation’s biggest brokers by market value, announced plans for share sales that will help fund an expansion of businesses including margin financing. Those two and Guotai Junan were the three largest by assets in a 2013 ranking by the Securities Association of China.

“The regulators are doing this to cool down the stock market,” said Castor Pang, head of research at Core-Pacific Yamaichi in Hong Kong. “Stock market sentiment will definitely go down.”

— With assistance by Aipeng Soo

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