CHINA’S stock regulators raised margin finance requirements Friday in the name of preventing systemic risk but kept limits on how much firms price initial public offerings (IPOS) in place.

    The amount of collateral required for margin loans would double from 50 percent to 100 percent of the amount borrowed, the Shanghai and Shenzhen stock exchanges and the China Securities Regulatory Commission (CSRC) said in separate statements.

    At the same time, the CSRC said listing companies should keep their IPO pricing relatively low, in accordance with prior guidelines that companies price themselves within industry average valuations.

    A spokesman for the CSRC said that changes to margin finance would reduce systemic risk and had been prompted by the recent rapid recovery in margin financing activity.

    “Basically, what we can see from this is that CSRC has learned something from what happened this summer and is tightening prudential regulation ahead of a rising market, which is a positive,” said Oliver Barron, economist at NSBO in Beijing.

    “Clearly, they’ve been watching the revival of margin finance very closely. That’s all a good sign, but the question is how the market will take it. Every time there’s been a hint of a move like this in the past the market sold off.”

    Xiao Shijun, an analyst at Guodu Securities in Beijing, said he also expected short-term negative impact from the decisions.

    “It may also exert pressure on upcoming companies’ IPOs. But it will not have persisting influence on the overall liquidity in the stock market,” he said, because it is defending the market against new speculation, not forcing existing positions to close, as in the past.

    Chinese stock indices tentatively resumed a bull run in November, helped by a steady rise in margin trading. The daily outstanding margin reached 1.15 trillion yuan (US$180.43 billion) Wednesday, the highest since Aug. 26.

    After a brutal 40 percent decline in late summer, prompted in part by a panic sale among margin borrowers, China’s main stock indices have recovered around 20 percent since late September, but it is unclear whether it will sustain given gloom in the real economy.

    In the past, investors often sold shares in advance of anticipated listings, worried that they would cannibalize capital from the rest of the market. (SD-Agencies)