Shanghai Exchange to support securities lending

Shanghai Exchange to support securities lending

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The Shanghai Stock Exchange (SSE) will encourage professional institutional investors to engage in securities lending in order to drive supply and demand of securities sources in the market.

The exchange's businesses of margin trading and securities lending launched five years ago. While margin trading has since grown rapidly, securities lending has lagged behind, so SSE has said institutions shall be supported to engage in securities lending and securities lending of refinancing on the condition that risks are controlled and investors’ rights and interests are protected.

The exchange has listed five methods through which it will provide support.

Products established by professional institutional investors, including publicly offered funds and asset managers, will be be able to engage in securities lending the day they are established.

Agreed practices for securities lending of refinancing shall be introduced to assist securities companies in developing securities lending according to clients’ needs. Securities lending participants will be able to have a say in determining factors such as rate and time limit for securities lending of refinancing, in a bid to raise the trading efficiency and meet the market demand.

The trading mechanism securities lending sales will be optimised for efficiency. The order price at which exchange traded funds are sold by investors through securities lending shall be kept within the range of valid bidding price stipulated by the exchange, and allowed to be lower than the latest trading price. It seems that collateral will be allowed to be rehypothocated into high-liquidity securities recognised by the exchange:

"The money from selling through securities lending can be used for purchasing or subscribing for cash management products of securities companies, money market funds and other high-liquidity securities."

Short selling will also gain support, with the number of stocks deemed fit for purpose to be included in the range of underlying securities to rise 1,100:

"Stocks fit for short selling through securities lending shall be included in the range of underlying securities of securities lending and those of securities lending of refinancing, the number of which shall be increased to 1,100, thereby fully exerting the market regulating role of short selling mechanism of securities lending.”

Finally, risk controls of securities lending will be strengthened to prevent associated business risks. 

"All securities companies and fund companies shall further enhance internal control and risk management of securities lending, protect the rights and interests of investors, and ensure the sound development of this business."

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