The Securities and Futures Com-mission may lower the margin for short-selling from 150 percent to 90 percent as early as next week, Chinese-language media quoted chairman Chu Jaw-chyuan (
Just last week securities officials raised the margin for short-selling from 120 percent to 150 percent, with the aim of dis-couraging securities investors from selling-short stocks. Ironically, after the measure was announced, the volume of short-selling increased.
Short-selling is borrowing shares from a securities company in the hope that these shares can be replaced at a lower price sometime in the future, thereby profiting from the difference between the two transactions.
"After a recent discussion with representatives of the local fund industry, many fund companies have expressed the opinion that the percentage for short-selling is too high [at 150 percent]," the reports quoted Chu as saying.
The Securities and Futures Commission is going to submit its proposal to the finance ministry in the next few days. It's expected that the finance ministry will
accept the proposal and decide to lower the margin for short-selling sometime next week, according to commission officials.
In an effort to revive the stock market, the ministry decided on Oct. 19 last year to raise the margin for short-selling from 90 percent to 120 percent. It was raised to 150 percent late last month.
Market analysts said cutting the short-selling margin is designed to correct the imbalance between margin buying and short-selling, adding that such a measure is the right way to go.
"The securities regulator is on the right track in reducing the short-selling margin," said Liu Kai-pin (
"The margin for short-selling should not have been used as a tool for intervening in the stock market from the start," Liu said.
"It has already been proven that it's counterproductive from the recent reaction in the market. Investors will not stop selling short, even if the margin was raised by more than 60 percentage points in recent months," he said.
Another analyst said short-selling is good for the market. "Short-selling is an important buying power after the market declines significantly," said Dicky Dai (戴震), a senior stock market commentator.
"Since short-sellers have sold their position, they are looking for a buying opportunity when the market falls. When the market significantly drops or has collapsed, there is hardly anyone else willing to buy shares except the short-sellers. Without the short-seller, it would be even harder to recover from a bearish market," Dai explained.
"The securities regulator has decided to let the market go back to where it should be. It's the right move," Dai said.
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