More China brokerages tighten margin rules to contain risks

Reuters
An investor is reflected on the surface of a wall as he walks past an electronic board showing stock information, filled with red figures indicating rising prices, at a brokerage house in Taiyuan, Shanxi province, China, May 27, 2015. REUTERS/Jon Woo

SHANGHAI (Reuters) - At least three Chinese brokerages, including Guosen Securities Co, Southwest Securities Co and Changjiang Securities Co, tightened margin financing rules on Thursday to tame risks in a red-hot stock market fueled by a record amount of borrowed money. Separately, the Shanghai Securities News reported on its website that regulators have recently urged banks to submit data regarding money flows into the stock market. China's benchmark indexes fell over 1 percent on Thursday morning. Guosen Securities said in a statement on its website on Thursday that starting immediately, 275 stocks can no longer be used as collateral against borrowing. The announcement came a day after the brokerage raised margin requirements for 908 companies, demanding investors put aside more deposits to borrow the same amount of money to buy those stocks. Changjiang Securities and Southwest Securities also tightened margin financing rules from Thursday, while Haitong Securities and GF Securities took similar measures earlier this week. China's stock market has surged over 140 percent over the past 12 months despite a flagging economy, as retail investors, including university students, barbers and janitors pile into the best performing market in the world. The rally was largely fueled by margin financing - outstanding value hit a record 2 trillion yuan ($322.60 billion)on Tuesday. Credit Suisse estimates that margin trading accounts for around six to nine percent of total market capitalization, and contributes to 15 percent of market turnover in China. The tightening moves by brokerages came after Securities Association of China (SAC), an industry body under the guidance of regulator CSRC, last month urged securities firms to conduct self-investigations into their margin trading business. All brokerages were specifically required by SAC to check whether they need to adjust the current minimum deposits ratio and collateral ratio, whether they have efficient measures to control risks from high-indebted clients and over-valued stocks, among other requirements, according to a document obtained by Reuters. ($1 = 6.1996 Chinese yuan) (Reporting by Samuel Shen and Pete Sweeney; Additional reporting by Shanghai newsroom; Editing by Kim Coghill)