© Reuters. FILE PHOTO: A man wearing a mask walks by the Shanghai Stock Exchange building at the Pudong financial district in Shanghai, China, February 3, 2020. REUTERS/Aly Song/File Photo
(Reuters) -China is launching a campaign to revive its lagging stock market, and boost investor confidence in an ailing economy. A slew of measures announced include reducing trading costs, slowing the pace of initial public offerings (IPOs), encouraging margin financing and protecting small investors.The securities regulator also introduced fresh measures on Friday to improve the two-year old Beijing Stock Exchange, focusing on boosting the market’s liquidity. Here are what the authorities have done, and what more to expect.
IMPROVING BEIJING STOCK EXCHANGE:
China Securities Regulatory Commission (CSRC) aims to boost liquidity in the market by relaxing investor thresholds and improving trading mechanisms. The team of market-makers will be expanded, and all shares listed in the market will be eligible for margin financing, the CSRC said.
The CSRC said it will guide more mutual funds to expand their investments in the market.
It will seek to reform and invigorate the market, focusing on funding innovative small companies that specialise in niche sectors. The securities regulator also issued rules to ease listing rules and improve listed companies’ quality.
TRANSACTION COSTS:
The stamp duty on stock trading was halved on Aug 28, the finance ministry announced. Transaction handling fees submitted by brokers to the exchanges had also been reduced, according to the CSRC.
Chinese stock exchanges will also lower margin requirements to encourage financing by investors. The measure will be effective on September 8th.
And, following CSRC guidance, a growing number of mutual fund companies are cutting management fees.
CAPITAL RAISING AND REFINANCING:
The CSRC said China would slow the pace of initial public offerings (IPOs) to promote a dynamic balance between capital raising and investing activities.
The CSRC will also tighten restrictions on refinancing activities by listed firms, targeting loss-making and underperforming companies.
PROTECTING SMALL INVESTORS:
The CSRC tightened rules on large shareholders’ selling shares when the traded price is lower than its IPO price or net asset value per share, or when the company has not declared enough cash dividends in the past three years.
The CSRC tightened scrutiny over programme trading after some investors blamed the programmes for increasing market volatility.
Disappointing some market players, the CSRC kept in place a bar on traders buying and selling shares on the same day, arguing that it could drive speculation and harm small investors.
Currently, investors in China can only sell stocks on the second day after their purchase.
MORE TO COME:
China’s securities regulator approved the launch of 37 retail funds, signalling faster registration for index funds and boosting the development of equity funds. Market participants expect the emergence of more innovative index products.
The regulator is working on optimizing rules covering share repurchases, including relaxing requirements when share prices tumble. Company share repurchases are considered a good sign by investors, as it implies the stock is undervalued.
The regulator pledged support to key break-through technology companies and is evaluating more options to meet those companies’ financing needs.
The CSRC is planning to involve more long-term investors such as pension funds in investing in China’s capital market.
The regulator is also studying the possibility of extending trading hours.
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