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Margin financing, securities lending urged

(chinadaily.com.cn)
Updated: 2007-04-29 13:56

According to the 2007 Market Quality Report released recently, TheShanghai Stock Exchangesuggests the Chinese mainland stock market should introduce margin financing and securities lending businesses as soon as possible.

The reports shows theShanghaiStock Exchange has greatly improved its market quality, market stability and pricing efficiency, due to the introduction of the warrant and exchange traded funds, and establishment of new trading mechanisms including open call auction, market order and prime dealer system.

The Shanghai stock market is at the same level with the international market in bid-ask spreads and effective spreads, but lags behind major foreign stock exchanges in market penetration and liquidity cost.

The report indicates remarkable differences among sectors in price impact index, liquidity index, bid-ask spreads and pricing efficiency index. In the report, the Shanghai exchange gives advice on raising the liquidity and market efficiency of the domestic stock market.

First, the stock market needs to perfect the market product structure and develop financing derivatives. Second, it needs to improve the issuance regulation system and encourage companies to get listed on the mainland stock exchanges as soon as possible.

Third, to encourage more institutional investors, establish an evaluation system assessing fund companies' transactions and launch margin financing and securities lending services. Fourth, to welcome foreign investors and allow foreign companies to list on the mainland bourses.

Fifth, to implement a disparity trading mechanism based on the stocks' liquidity and price efficiency level, introduce a continuous call auction trading mechanism and adopt minimum stock quoting unit based on the price range. Lastly, to perfect securities legislation and regulation, and balance market development and regulation.