China Increases Margin Financing Requirement to 100% to Mitigate Risks

China Increases Margin Requirement for Stock Market Financing

China has implemented a new policy requiring investors to provide collateral equal to the entire value of securities purchased on margin, doubling the previous requirement of 80%. This adjustment, announced by the Shenzhen Stock Exchange, is now in effect across the Shenzhen, Shanghai, and Beijing stock markets. The change highlights the authorities' ongoing commitment to strengthening risk management within the financial sector.

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While the stricter margin rules do not prevent domestic funds or individual investors from trading local shares, they do limit the amount of leverage available unless additional capital is provided. Regulatory authorities often adjust margin financing requirements to counteract excessive speculation or to address concerns about market leverage.

Following the announcement, Chinese equities gave up earlier gains. The CSI 300 Index, which had risen by 1.2% after the midday break, reversed its advance. Earlier in the year, optimism surrounding technological progress had fueled a surge in margin lending and trading activity, driving turnover to new highs.

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