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File photo shows the entrance of the China Securities Regulatory Commission (CSRC) in Beijing, capital of China. (Photo:Xinhua)

The China Securities Regulatory Commission (CSRC), the top stock market regulator, announced on Tuesday that starting on Wednesday, applications for securities relending, a tool used for short-selling, would be suspended, in another step to stabilize the capital market.  

In a separate announcement on its website, the CSRC also said that it has significantly curbed computer-driven programmed trading and vowed to expedite the roll-out of more pragmatic measures to strengthen regulation of programmed trading so as to reduce its adverse impact on the capital market. 

Chinese regulators have stepped up curbs against activities that negatively impact the stock market, and the new steps will further help to lift investors’ confidence and stabilize the capital market, analysts said. 

In the announcement on Wednesday, the CSRC said that the move to suspend new applications for securities relending was aimed at effectively responding to investors’ concerns and maintain the stable operation of the market, after fully evaluating the current market situation. The new adjustment will “help prevent operational risks and maintain the stable and orderly operation of the market,” the CSRC said.

While new applications for securities relending will be suspended starting on Thursday, existing contracts are allowed to continue until the end of September, according to the CSRC. In addition, the minimum margin requirement ratio for securities relending will be raised to 100 percent from the current 80 percent, starting on July 22, while the ratio for those involving private securities investment funds will be raised from 100 percent to 120 percent.

The CSRC said that in response to investors’ concerns, it has taken a series of measures to strengthen regulations for securities relending since August 2023, including a continuous crackdown on illegal activities in the area, which has resulted in a significant drop in the overall scale of securities relending. 

According to Xu Kang, chief financial industry analyst at Huachuang Securities, since the beginning of the year, the market scale of securities relending has dropped from 69.2 billion yuan ($9.51 billion) to 31.8 billion yuan.  

“This will help boost market confidence to a certain extent,” Xu said in a note. “The suspension of securities relending and the overall increase in the securities relending margin ratio will help to boost market sentiment,” Xu added.

In another major step to stabilize the stock market, an official with the CSRC said on Wednesday that the regulator’s curbs against programmed trading have seen remarkable initial success and more measures will be taken to further regulate programmed trading.  

According to the official, as of the end of June, there were more than 1,600 high-frequency trading accounts in the market, a drop of more than 20 percent during the year, and trading activities that meet abnormal transaction monitoring standards have dropped by nearly 60 percent in the past three months.

Going forward, the CSRC will accelerate the introduction of more pragmatic measures to further strengthen regulation of programed trading, reduce the negative impact of programmed trading, and effectively maintain market transaction fairness, the official said.

The announcements came after trading closed on Wednesday. Chinese stocks closed lower, with the Shanghai Composite Index falling 0.68 percent, while the Shenzhen Component Index lost 0.1 percent.