China will double the deposit needed for investors to obtain funds to trade stocks, known as margin trading - The Shanghai stock trade explained on Friday, as authorities look to constrain a practice that made an enormous market bubble.
Both the Shanghai and Shenzen stock market will stretch the least requirement for margin trading from 50 percent to 100 percent, the twice as stated by Shanghai bourse on its authority microblog. This implies the investors must have the similar level of funds in their accounts as the volume they actually want to borrow, Yahoo News reports.
"The regulators want margin trading to increase in an orderly manner," says Wu Kan, A Shanghai-based fund manager at JK Life Insurance, told Bloomberg News.
Margin trading, a method by which investors only require investing a small proportion of a value of their trades, potentially produces bigger profits but also exposes to prominent losses.
The exchange states, "In order to realistically protect investors' legal rights and prevent systematic risks, it is necessary to lower leverage appropriately in order to push the healthy and sustainable development of the market," as revealed by Be Recorder.
The unusual balance for margin trading of the Shanghai and Shenzen exchange combined had grown nearly 30 percent to 1.17 Trillion Yuan as of Thursday from the end of September, the data presented.
"While it might have a negative impact in the very short run, I think ultimately it's a very good in the long run," Brendan Ahern, Managing director at Krane Fund Advisors LLC In New York stated via phone on Friday, as reported by Bloomberg Business.
The news to increase margin specifications came from China's top union buster reported an inquiry in Yao Gang on Friday, one of the four vice chairmen at the nation's securities control as the Government goes far with its crackdown on the financial business.
Margin financing, which shrank more than a half amid the rout, has now risen for six straight weeks as the Shanghai Composite Index skipped once more into a bull market.
The choice to harden investor access to the loans was issued a week after regulators elevated a freeze on primary state offerings thus eliminating one of the main methods of support for equities.
"This is just regulators trying to keep markets from overheating," Gabriel Wallach, founder and portfolio manager at North Grove Capital LLC in Boston conveyed via phone statement. "The positive interpretation is that they feel comfortable enough with the fundamentals and the market level."
The Shanghai market closed down to 1.43 percent at the end of Friday ahead of the disclosure.
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