China Tightens Screws on Leveraged Trading as Market Volatility Grows

As market corrections in China lead to mounting losses for individual investors who borrowed to invest, Chinese securities firms have begun tightening screenings for high-risk investments such as margin trading and options.

Citing local sources, Bloomberg reported on the 9th local time that Chinese brokerages, including CITIC Securities and East Money Information, have recently tightened compliance requirements for clients seeking leverage and derivatives trading.

Multiple sources told Bloomberg that before approving margin financing, securities lending, or options accounts, brokerages are reviewing investors' financial conditions, trading experience, and risk tolerance more strictly than before.

Some securities firms are reportedly planning to restrict additional borrowing for investors who opened new accounts within the past six months or have frequently received margin calls.

Bloomberg analyzed that this move shows authorities are raising their guard against related risks, as leveraged investments by retail investors surged amid this year's stock price rallies before the market sharply declined.

The outlet noted that authorities are concerned that consecutive forced liquidations triggered by falling collateral values could create a vicious cycle that further accelerates stock declines, and that massive losses among retail investors could spread beyond the financial markets into social unrest.

The CSI 300 Index, a benchmark for China's large-cap stocks, climbed to its highest level since late 2021 last June before turning downward recently.

A shift in the outlook for the artificial intelligence industry and domestic stock market instability combined to drive corrections in tech stocks.

The ChiNext index of the Shenzhen Stock Exchange, often called China's Nasdaq, and the STAR 50 index, a key index for the Shanghai Stock Exchange's Science and Technology Innovation Board, both plunged more than 20% last month.

According to Bloomberg, 960,666 new margin trading accounts were opened in China in the first half of this year, representing a 60% increase compared to the same period last year.

In June alone, 179,021 new accounts were opened, surging 77% from the same month a year earlier.

The balance of margin trading exceeded 3 trillion yuan (approximately 629 trillion won) at the end of June before dropping to 2.6 trillion yuan (approximately 545 trillion won) by the end of last month.

Local brokerage officials told Bloomberg that as market volatility intensified, an increasing number of retail investors had their holdings forcibly liquidated due to insufficient collateral late last month.

Total stock market trading volume also plummeted.

Bloomberg explained that China's stock market trading value, which approached 4 trillion yuan (approximately 839조 won) per day at the end of June, has fallen below 3 trillion yuan (approximately 629 trillion won) in recent weeks.

China's leadership has also stepped up to emphasize market stability.

During a Politburo meeting held at the end of last month, the Chinese Communist Party leadership stated its policy to boost investor confidence and strengthen the resilience and stability of the capital market.

Bloomberg added that Chinese policymakers are focusing on promoting long-term capital market development and boosting investor confidence while curbing speculative trading that could amplify market instability.

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※ Please note: This article was translated by AI and may contain errors.