CSFC widens margin refinancing pilot

Another 22 securities brokerages are now allowed to engage in margin trading refinancing, which means they can borrow money from China Securities Finance Corporation (CSFC), a centralized securities financing body, to facilitate their clients' margin trades, according to a statement posted on CSFC's website Tuesday.

Margin trading refinancing in China grew out of a pilot program launched in August which allows securities firms to borrow money and stocks from CSFC in order to expand margin trading and short selling activities in the domestic market. The refinancing program was created as most of China's securities firms lacked the capital or the share inventories to fully support the margin trades and securities loans which became possible thanks to a separate program introduced in 2010.

Having now undergone its third round of expansion since August, the refinancing program enables most of the country's investors involved in margin trading to receive loans from CSFC via qualified brokerages.

Currently, a total of 52 securities firms are now authorized to join in the program, and these firms cover around 95 percent of the investors engaged in margin trading and securities lending, according to CSFC.

Since August, CSFC has lent 50.68 billion yuan ($8.15 billion) to 30 securities firms, according to information from the financing body. As of Monday, the total value of margin trading in China had stacked up to 103.24 billion yuan, up 55.93 percent from the end of August after the refinancing scheme was introduced, and well above the 42.45 percent growth rate seen during the same-length period leading up to its launch, according to information from the Shanghai and Shenzhen stock exchanges.

More securities firms may get permission to join in the refinancing program after China's Spring Festival holiday comes to an end on February 16, the 21st Century Business Herald reported Tuesday, citing insiders from CSFC. After the holiday as well, margin trading refinancing may move out of its current experimental stage and become a routine operation in the financial market, the report also stated.

"As the refinancing program expands, the regulators intend to facilitate margin trading as a way to bring more capital into the stock market," Zhang Xin, an analyst from Guotai Junan Securities, told the Global Times.

Demand for margin trading has grown quickly among investors recently, with the average daily added volume reaching around 1.3 billion yuan for the month of January as of Tuesday, about seven times above last year's daily average, statistics from CSFC reveal.

However, Zhang warned that risks may also be accumulating with the fast growth of margin trading.

"Securities firms should provide risk alerts to investors, otherwise their blind investing may create false prosperity," Zhang said.