CHINA’S securities regulator has fully suspended the lending of restricted shares for short selling effective from yesterday, in policymakers’ latest attempt to stabilize the country’s stock markets following recent sharp falls.

Strategic investors won’t be allowed to lend out shares during agreed lockup periods, the Shanghai and Shenzhen stock exchanges said in separate releases following the statement by the China Securities Regulatory Commission (CSRC) on Sunday.

Restricted shares are often offered to company employees or investors with certain limits on their sale, but they can be lent to others for trading purposes, such as short-selling, which can add pressure on markets during a prolonged slump.

“The move may have limited impact in terms of stabilizing the market” as some estimates show that such security lending balance is of insignificant size, said Willer Chen, senior analyst at Forsyth Barr Asia Ltd.

“Still, this is a good gesture as market participants had been calling for regulators to step in on this front.”

Authorities are taking measures following an alarming slide in Chinese stocks — the MSCI China Index has lost 60% from a February 2021 peak.

Last October, limits were put on the lending of shares that executives and other key employees get in strategic placements, and other curbs were imposed.

Since then, the outstanding value of stocks lent by strategic investors has dropped 40%, the CSRC said Sunday.

The MSCI China gauge scored its first weekly gain of the year last week, trimming its loss for 2024 to about 7%, after the central bank announced an imminent reserve requirement ratio cut and plans for targeted stimulus.

Sunday’s move will “highlight fairness and reasonableness, reduce the efficiency of securities lending, and restrict the advantages of institutions in the use of information and tools, giving all types of investors more time to digest market information and creating a fairer market order,” the CSRC said in its statement.

The limit on short selling, however, is unlikely to give stocks a sustainable boost as sentiment remains weak.

In 2015, China restricted short selling to force out day traders, whose selling and buying on the same day was seen as fueling “abnormal fluctuations.”

However, the market continued to slide in the following months.

The CSRC said that the move would “resolutely” crack down on illegal activities that use securities lending to reduce holdings and cash out.

The CSRC also vowed Sunday to crack down on the bypassing of lockup restrictions. From March 18, securities finance firms that borrow shares from institutional investors will have to wait one day before providing them to brokerages instead of the stock being immediately available, according to Sunday’s statement. (SD-Agencies)