China Securities Regulatory Commission Seeks Public Comments on the Measures for the Administration of Margin Trading and Securities Lending Business of Securities Companies

Recently, the China Securities Regulatory Commission (CSRC) solicited public comments on the revised "Administrative Measures on Margin Trading and Securities Lending Business of Securities Companies" (hereinafter referred to as the "Administrative Measures").

The CSRC attaches great importance to the development, regulation, and risk prevention of the margin trading and securities lending business of securities companies. In June 2006, the CSRC formulated and issued the "Pilot Administrative Measures on Margin Trading and Securities Lending Business of Securities Companies," and launched the pilot program for the margin trading and securities lending business of securities companies in March 2010. In October 2011, the CSRC revised the pilot measures based on market development needs, transitioning the margin trading and securities lending business of securities companies into a regular business, which has since achieved rapid growth. Currently, the margin trading and securities lending business is generally healthy with controllable risks, but as the business grows rapidly, there is a need to further refine relevant risk control and preventive measures, optimize relevant business regulatory provisions, and promote the sound development of the margin trading and securities lending business.

This revision of the "Administrative Measures," on the one hand, strengthens supervision, risk prevention and control, reinforces the requirements for securities companies to autonomously adjust and prevent business risks, improves the regulatory mechanism, clarifies the regulatory baseline, strengthens investor rights and interests protection, and requires that the business scale of securities companies matches their own capital strength. On the other hand, it removes certain restrictive provisions that no longer suit the actual development of the business, enhancing the capability of the margin trading and securities lending business to serve the capital market and investors.
The main revisions are as follows: First, the "Administrative Measures" is elevated from a CSRC announcement to a departmental regulation; second, a counter-cyclical adjustment mechanism is established to conduct macro-prudential management of the margin trading and securities lending business; third, the monitoring and surveillance mechanism for the margin trading and securities lending business is improved, strengthening the statistics and monitoring surveillance duties of China Securities Finance Corporation Limited; fourth, the regulatory baseline is clarified, specifying six prohibited behaviors for securities companies conducting margin trading and securities lending business; fifth, the business scale of securities companies is reasonably controlled, requiring it to match the net capital of the securities company; sixth, investor rights and interests protection is strengthened, requiring securities companies to fully disclose risks to clients; seventh, client participation conditions are improved, removing the requirements for investors to have engaged in securities trading at the same securities company for at least six months and for trading settlement funds to be placed under third-party custody, and relaxing the conditions for professional institutional investors to participate in margin trading and securities lending transactions; eighth, to meet investors' long-term investment needs, reasonable extension of margin trading and securities lending contracts is permitted; ninth, the standards and methods for disposing of client collateral defaults in margin trading and securities lending are optimized, making them more flexible and reasonable.

The main purpose of this revision of the "Administrative Measures" is to further improve the system, promote the standardized and healthy development of the margin trading and securities lending business, and ensure the stable and orderly operation of the market. Valuable opinions from all sectors of society are welcome.