(Aug 10): Chinese brokerages are tightening scrutiny on new accounts and stepping up reviews for margin financing, securities lending, and options trading as regulators move to curb overly risky bets following a sharp market pullback.
Several firms including Citic Securities Co and East Money Information Co have recently raised compliance requirements for clients seeking leverage or derivatives trading, according to people familiar with the matter, who asked not to be identified discussing private matter. The two brokers didn’t respond to requests for comment.
The measures include more stringent checks on finances, trading experience and risk tolerance before approving access to margin financing or options accounts, the people said. At several brokerages, investors who opened fresh accounts in the past six months or have received frequent margin calls will be restricted from further borrowing.
The clampdown underscores Beijing’s growing caution over equity market leverage, where severe retail losses risk spilling over into broader financial and social instability. Authorities are focusing on highly leveraged trading, which can trigger forced liquidations and accelerate market declines.
“Excessive concentrations of leverage in certain segments has increased the risk of market instability,” said Wang Chen, a partner at XuFunds Investment Management Co. “While those risks appear to have eased, they have likely not been fully unwound and will remain a regulatory focus in the coming period.”
Retail investors flooded into Chinese stocks during this year’s rally, relying heavily on borrowed money to chase gains. But as market volatility spiked, an increasing number of mom-and-pop traders were forced out of their positions in late July, according to brokerage account managers.
China’s total margin trading balance dropped to 2.6 trillion yuan (US$362 billion or RM1.5 trillion) at the end of July after topping three trillion yuan in late June, according to data compiled by Bloomberg. Investors opened 960,660 new margin trading accounts in the first half of the year — a 60% jump from a year earlier. June alone saw 179,021 new accounts opened, up 77% year-on-year, highlighting the surge in retail demand for leveraged bets.
The trading boom boosted earnings across the brokerage industry. China International Capital Corp estimates that 42 listed securities firms posted a combined 142.5 billion yuan in net income in the first half, up 50% from a year earlier. Citic Securities Co reported a 69.6% surge in first-half net income to a record high, while Guotai Junan Securities Co forecast profit growth of 27% to 30%, with recurring earnings reaching a new first-half peak.
Daily trading volumes in Chinese equities approached four trillion yuan in late June before falling below three trillion yuan in recent weeks.
Policymakers are attempting to foster long-term capital market development while weeding out speculative behavior. At a Politburo meeting in late July, top leaders pledged to boost investor confidence and reinforce market resilience.
The benchmark CSI 300 Index retreated after touching its highest level since late 2021 in June, rattled by regional market turbulence and shifting outlooks for the artificial intelligence sector. Tech-heavy indices took the brunt of the sell-off in July, with both the ChiNext Index and the STAR 50 Index tumbling more than 20%.
Uploaded by Magessan Varatharaja