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FINANCE

China to Curb Use of Shares as Collateral Amid Risk Concerns

By Zhu Liangtao and Leng Cheng
Draft rules released on Friday state that a maximum of 50% of the outstanding equity of a company listed on the domestic stock markets can be pledged for the purpose of borrowing money from a brokerage or other institution. Photo: Visual China
Draft rules released on Friday state that a maximum of 50% of the outstanding equity of a company listed on the domestic stock markets can be pledged for the purpose of borrowing money from a brokerage or other institution. Photo: Visual China

China’s securities regulators plan to set limits on the amount of shares that investors can put up as collateral for loans — an effort to curb leverage in the financial system and ward off potentially destabilizing slumps in equity prices.

Draft rules released by the country’s two mainland stock exchanges and the China Securities Depository and Clearing Corp. late Friday state that a maximum of 50% of the outstanding equity of a company listed on the domestic stock markets, known as A-shares, can be pledged for the purpose of borrowing money from a brokerage or other institution. The regulators are also capping the amount of money an investor can raise at 60% of the market value of the pledged shares.

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