China said to restrict stock sales by brokerage proprietary traders

Investors looking at screens showing stock information at a brokerage house in Shanghai, on Jan 16, 2020. PHOTO: REUTERS

SHANGHAI (BLOOMBERG) - China's securities regulator has tapped some brokerages and funds to support the stock market, which saw an onslaught of selling on Monday (Feb 3) as investors grapple to assess the impact of the deadly coronavirus, people familiar with the matter said.

The China Securities Regulatory Commission (CSRC) told some brokerages that their proprietary traders are not allowed to be net sellers of equities this week, said the people, asking not to be identified for discussing a private matter. On Monday, brokerage firms are only allowed to sell to meet investors' redemptions, according to the people. Nevertheless, shares plummeted, posting the biggest declines since an equity bubble burst in 2015.

The Chinese authorities have a long history of intervening to stem losses in equities - both directly and through issuing guidance to brokerages - with a mixed record of success. While state buying is credited with helping to end the rout in 2015, there was a US$5 trillion (S$6.8 trillion) wipeout before the recovery started to take hold.

Regulators unveiled a slew of measures over the weekend to ensure stability of its US$45 trillion financial system as the nation stepped up the fight against the spreading virus. The central bank supplied 1.2 trillion yuan (S$236 billion) to money markets on Monday, while the CSRC said it would halt night sessions for futures trading and allow some share pledge contracts to be extended by as long as six months.

The CSI 300 Index dropped as much as 9.1 per cent as onshore financial markets opened for the first time since Jan 23. It fell 8.2 per cent as of 10:53am.

The outbreak of the new coronavirus has wrecked what would otherwise be a strong period for retail sales, with hundreds of millions of Chinese traveling and spending during the new year celebrations. The disease emerged just as China's economy was picking up steam, with the securing of a phase-one trade deal with the US and signs of an upturn in manufacturing.

The CSRC said on Sunday it has studied measures to hedge risks and ease market panic and it will be on high alert on Monday. It defended its decision to reopen markets after rather than delaying it further as a result of "weighing all factors".

The nation's state funds are ready to intervene anytime on Monday to stabilise the market, some of the people said. The CSRC also suspended securities lending, one of the few short -elling tools available in China, from Monday, the people added.

The CSRC did not immediately respond to an e-mail seeking comment.

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