CHINA’S recent liberalization of stock short-selling rules is not intended to encourage the practise, the China Securities Regulatory Commission (CSRC) said Saturday, after overseas markets dropped sharply in response to the move.

    In a post on its official microblog account, the CSRC published a transcript of a journalist question and answer session, in which it was asked whether the goal of the policy was to encourage short-selling and depress the stock market.

    “This is a misunderstanding, a misreading,” the CSRC said. “This sort of trade is a mature mechanism used in overseas markets, it helps moderate volatility and help with price discovery and hedging against risk ... It is certainly not encouraging shorting as has been said, even less an attempt to suppress the market.”

    Short-selling involves borrowing stock in order to sell it, with the aim of buying it back more cheaply and thereby make a profit. The practise has been blamed in some countries for sharp falls in stock markets.

    Chinese regulators said Friday, after the stock markets had closed, they would allow fund managers to lend shares for short-selling, and would also expand the number of stocks investors can short sell, in a bid to raise the supply of securities in the market.

    Institutional investors are encouraged to lend stocks because the “margin financing business has been growing rapidly, but the business of short-selling has been developing slowly,” the Shanghai and Shenzhen stock exchanges said.

    Investors now face difficulties borrowing stocks for sale, even with some companies trading at lofty valuations.

    In the past, short-selling was tightly restricted in China and most investors focused on making money on upside stock moves. (SD-Agencies)