Money

China plans to let brokerages borrow stocks, cash: Report

(Agencies)
Updated: 2010-10-21 10:39

SHANGHAI - China plans to allow brokerages to borrow stocks and cash to fund their margin trading and short-selling business, Reuters reported citing the Shanghai Securities News on Thursday.

China Securities Finance Co would act as an intermediary that channels securities and funds between brokerages, according to draft rules, unidentified sources told the Shanghai Securities News.

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China Securities Finance would also be able to borrow stocks from mutual funds, insurers, China's social welfare fund and major shareholders of listed companies, while it could sell bonds to borrow money.

Margin trading and short selling, which China introduced in March, has exceeded 5 billion yuan ($752 million), but growth is restricted because brokerages can now only use their own money and stocks for the business, the article said.

Margin trading allows investors to borrow money to buy stocks while short selling allows investors to sell borrowed stocks in the hope that they can buy them back at a lower price to pocket the difference.