CHINA’S securities regulator Friday said it will investigate increasing incidents of new types of “grey market” margin finance in the stock market.

    Grey margin finance, which allow speculators to borrow money to buy stocks outside of the usual channels through brokerages, was a major contributor to China’s equity market bubble in early 2015. The ensuing crash was triggered in part by a regulatory crackdown on such activities.

    The regulator’s move came after China Securities Finance Corp., the State-backed agency that provides funding to brokerages for margin trading, restarted offering loans to securities firms for periods ranging from 7 days to 182 days four days ago.

    Margin trading, through which investors only need to deposit a small proportion of the value of their trades, potentially generates bigger profits but also exposes them to bigger losses.

    The amount of shares purchased on margin had dropped sharply from last year’s pre-rout peak as traders fled the world’s worst-performing stock market and regulators made it harder for investors to access loans. Leveraged bets fell to the lowest level since December 2014 in the week through March 18. But outstanding margin trading rose 2.2 percent, the most since Nov. 9, to 863.3 billion yuan (US$133 billion) last Monday, the same day when China Securities Finance resumed short-dated margin loans to brokerages at lower interest rates.

    The reduced rates shouldn’t be seen as regulators encouraging leverage in the stock market, China Securities Journal reported on its front page Wednesday, without citing anyone. The rate cut was a normal adjustment based on the money market rate trend, as well as changes in supply and demand, the newspaper wrote.

    Deng Ge, a spokesman for the China Securities Regulatory Commission (CSRC), also said Friday that plans for a proposed emerging industries board needed more study.

    The emerging industries stock board was first proposed by the State Council in 2015. But domestic media said references to it were deleted from the nation’s 13th Five-Year Plan (2016-20), leading some observers to speculate the idea would be scrapped.

    Deng said that plans for the board are still at the discussion stage and various details still need to be finalized. He said that accelerating the development of strategic emerging industries remained “a national strategy and the CSRC pays close attention to supporting their development in the capital market.”

    The board was scheduled to be launched this year on the Shanghai Stock Exchange for domestic high growth and innovative companies as the existing ChiNext startup board in Shenzhen is not enough to serve a recent entrepreneurial wave.

    China’s emerging industry boomed in recent years as the government boosted service sector and high-tech manufacturing to facilitate an economic overhaul. The industry’s output is expected to account for 15 percent of gross domestic product by 2020, up from the current 8 percent.

    Deng also dismissed reports that the securities regulator had created a blacklist of 30 to 40 problematic listed companies, which it planned to delist, as it seeks to restore investor confidence through an intensified elimination of law-breaking firms.

    “The reports are seriously inconsistent with the facts,” said Deng. “Stock exchanges are responsible for the delisting of listed companies. Listed companies should operate according to the rules and regulations.”

    (SD-Agencies)