Refinancing program slated to cover short sales

China will launch a pilot refinancing program on February 28 to allow nearly a dozen brokerages to borrow shares from a centralized securities financing body in order to widen their securities lending businesses, the China Securities Journal (CSJ) reported Saturday.

Under the pilot scheme, a total of 11 securities companies that have already been using their own cash and shares to offer margin trading and short selling services for nearly three years will be given priority to borrow shares of 90 companies selected from the current pool of 500 qualified stocks eligible for margin trading and securities lending, the report said, citing China Securities Finance Corporation (CSFC).

Established in October 2011 to act as the central body which would facilitate the experimental refinancing mechanism, CSFC was designed to borrow money and stocks from institutional investors and then relend them to brokerages so their clients could conduct margin trades and short sales. The first phase of the project was launched in August 2012, although its aims at that time were limited to the expansion of margin trading.

Starting this Thursday though, CSFC will be able to borrow shares for fixed periods - three-day, seven-day, 14-day, 28-day and 182-day - at interest rates ranging from 1.5 percent to 2 percent, and lend them at rates from 4 percent to 3.5 percent, according to the report.

Although the securities refinancing program is intended to diversify the country's equity market and boost the brokerage sector, some are concerned that the rising prevalence of short selling may inflate speculation and selling pressures at mainland bourses.

Yet, popular notions that more access to short positions will suppress share prices are based largely on misconceptions, say analysts.

"Securities refinancing is just a new way of trading, and it doesn't change the value of a stock," an analyst from a Shanghai-based brokerage, who preferred to remain nameless, told the Global Times Sunday.

"Under the new mechanism, it will be easier for shares that are overvalued to go down as investors would be able to profit from their drops," he went on to say. "What investors should do is judge a company's real value and set a reasonable price range for its shares."