Beijing Stock Exchange Launches Margin Trading and Securities Lending Transactions

The Beijing Stock Exchange (BSE) launched margin trading and securities lending transactions on Monday, which will inject liquidity into the market and provide a better platform for the fundraising and development of small and medium-sized high-tech firms.

Eligible securities firms, entrusted by investors, were allowed to submit declarations for margin trading and securities lending transactions to the BSE as of Monday (February 13).

The launch of the activities is an important step to improve the BSE's trading system as well as the pricing function of the secondary market, said the bourse.

A total of 66 securities firms including China International Capital Corp, Haitong Securities and Essence Securities have obtained the right to do the business. Meanwhile, 56 BSE-listed companies are involved, including Beijing Northland Biotechnology Co, Sino IC Technology Co and BTR New Material Group Co, according to media reports.

Through margin lending, investors can load up on cheap debt to buy stocks so as to enlarge their profits when they expect stock prices to rise, whereas securities lending is important for short selling, in which investors borrow securities to immediately sell them and they buy them back at a lower price, according to industry insiders.

"Margin trading and securities lending transactions have been conducted on both the Shanghai and Shenzhen stock exchanges for 12 years and have achieved good results. The introduction of the practices to the BSE will increase market volatility and pricing efficiency," said Dong Dengxin, director of the Finance and Securities Institute of the Wuhan University of Science and Technology.

The BSE has stepped up efforts to improve market functions. The bourse launched its first market index - the BSE 50 - in November. It also unveiled draft rules on introducing market makers to reduce transaction cost. The bourse halved the commissions it charges for stock trading to 0.025 percent of the transaction value from December.

As of February 10, a total of 169 companies were listed at the Beijing bourse, with a combined market value of 240 billion yuan ($35.36 billion).

On Monday, the BSE 50 rose by 1.55 percent to 1,052.22. So far this year, the index has risen by 11.69 percent.

Along with sound stock performances, large volumes of foreign capital continue to flow into the A-share markets. In January, the amount of northbound capital reached a single-month record high of 141.2 billion yuan. 

Source: Global Times