In a decisive move to address investor concerns and stabilize market operations, the China Securities Regulatory Commission (CSRC) has approved the China Securities Finance Corporation (CSF)'s application to suspend securities relending activities. This suspension will take effect from July 11, 2024. Existing securities relending contracts may be extended but must be settled by September 30, 2024. Additionally, the CSRC has sanctioned an increase in the margin requirement for short-selling activities on stock exchanges from a minimum of 80% to 100%, and for private equity funds from a minimum of 100% to 120%, effective from July 22, 2024.

Securities lending and borrowing are fundamental mechanisms in capital markets, playing a crucial role in mitigating irrational market fluctuations, balancing long and short positions, facilitating price discovery, and attracting long-term capital. Since its introduction around 2013, China's securities lending system has provided necessary funds and securities for the securities lending business while enabling regulators to monitor activities, strengthen daily supervision, and implement countercyclical adjustments.

Since August 2023, the CSRC has implemented various measures to enhance the supervision of securities lending and relending activities. These include restricting the lending of shares by strategic investors, increasing the margin requirement for short-selling, reducing the efficiency of securities transfers in market-based securities lending agreements, and suspending the expansion of securities relending. Concurrently, securities firms have been required to strengthen the management of client transactions and increase the enforcement of regulations against improper arbitrage using securities lending. By the end of June 2024, the scale of securities lending and relending had decreased by 64% and 75%, respectively. The proportion of securities lending to the free float market capitalization of A-shares fell to approximately 0.05%, and the daily short-selling volume dropped from 0.7% to 0.2% of the A-share trading volume. These measures have significantly reduced the market impact, creating favorable conditions for suspending securities relending.

Going forward, the CSRC will thoroughly implement the State Council's guidelines on enhancing regulation, preventing risks, and promoting high-quality development of the capital market. Adopting a problem-oriented and goal-oriented approach, the CSRC will prioritize maintaining the fairness of the system and enhancing the market's intrinsic stability. Furthermore, the commission will strengthen daily supervision and countercyclical adjustments based on market conditions, rigorously crack down on illegal activities such as improper arbitrage, and ensure the stable operation of the market, thereby safeguarding investor interests.