CHINA’S State-backed provider of margin financing said yesterday that the risk of margin trading is controllable and margin calls are relatively small, in an apparent move to stem panic selling that sent main indices spiraling down more than 7 percent in the session.

    China Securities Finance Corp. (CSF), the only institution that provides margin financing loan services to China’s qualified securities companies, said investors’ collateral ratio is still well above danger levels, while the volume of shares, which investors were forced to sell to meet regulatory or margin requirements, are small.

    “There is still room for margin financing business to grow further,” CSF said in a posting on the official microblog of China’s securities regulator.

    China’s stock market staged a sharp rebound following CSF’s remarks.

    The market tumbled earlier yesterday, showing no signs of relief after a surprise double-barrelled policy easing move over the weekend by the central bank.

    The losses pushed China stocks deeper into correction territory, after a slump of over 20 percent in the last two weeks, fueled in large part by fears of a growing regulatory crackdown on loans used to speculate in securities.

    In a bid to ease such fears, CSF said that in the past two trading sessions, investors were forced to sell less than 6 million yuan (US$966,339.19) to meet margin calls from brokerages.

    Less than 4 billion yuan worth of stocks were sold via the so called HOMS investment platform, which is often used to facilitate “gray market” lending to stock investors.

    Regulators have been cracking down on “gray market” margin financing and also urged brokerages to tighten rules for regulated margin lending business, which has exceeded 2 trillion yuan.

    In another development, Bloomberg reported yesterday that regulators are considering suspending initial public offerings (IPOs) to stabilize the tumbling stock markets.

    Halting IPOs would head off any diversion of funds into new listings and would come on top of a weekend interest rate cut that was viewed by some analysts as a move to curb Chinese equities’ plunge into a bear market.

    The Shanghai Composite Index dropped 3.34 percent yesterday, taking declines from its June 12 peak to more than 22 percent. The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 3.3 percent to 4,191.55.

    (SD-Agencies)