By end of this month, China will expand the short selling program, as far as the report of the Shanghai Securities News is concerned. Some selected brokerages will be allowed for borrowing shares from the institutional investors, as stated in the report. In the report, China Securities Finance Corp. was sighted as the source.
The brokerages that have been selected so far are 11 and these can borrow share from a pre-approved pool of 90 publicly traded companies. Incidentally, China Securities Finance Corp. (CSFC) was set up for giving securities firms with stocks and funds for both margin trading and short selling. In the report, it was stated that such an expansion of the short selling program will enhance the value of the equity market of China. Incidentally, in a short sale, the investors sell borrowed shares with an expectation that these fall in prices. That ensures their profit in future.
The brokerages that have granted the permission to be a part of this trial program are: Haitong Securities, China Merchants Securities Co., GF Securities Co., Galaxy Securities Co., Guotai Junan Securities Co., China Securities Co., Everbright Securities Co., Huatai Securities Co., Guosen Securities Co., Shenyin & Wanguo Securities and Citic Securities Co. Incidentally, Citic Securities is the biggest listed broker in this program.
CSFC will now give these firms the permission to borrow shares from them. These same shares can then be re-lend to the customers. Incidentally, the pre-approved pool of securities has 40 companies listed in Shenzhen and 50 in Shanghai. In the report, the total market capitalization of this securities pool has been estimated to be of $1.49 trillion. It was also mentioned that borrowing shares from CSFC will only be valid for a fixed period of time such as 3, 7, 14, 28 or 182 days. However, the rates will vary depending on the fixed period length.
It is not expected that the expanded program will sure shot add to the selling pressure and thereby end up suppressing the equity market because of the existence of the Margin Trading program, according to the statement of the report. Many brokers (More than the short selling program) are already a part of the margin trading program. Incidentally, this program allows the investors to get some money from the brokers when they try to buy shares.