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Margin Debt Continues To Tumble, CSRC To Guide Brokerages On Matters

CHINA STOCKS

Recent headline flows on the broader wires provides comments from the CSRC, noting that it will guide brokerages re: adjusting margin call levels.

  • The regulator went on to note that it will guide securities firms to maintain flexibility re: the closing out of positions by extending the time permitted for adding collateral to accounts, along with other “dynamic” moves, in a bid to reduce the forced liquidation of positions and related market pressure.
  • A quick reminder that margin usage re: Chinese equities has tumbled in recent weeks, suggesting that the forced exit of levered long trades has contributed to the weakness observed in Chinese equities.
  • Zoom out on those charts though. While the move looks relatively aggressive in the short-term (Friday's tumble represented the largest one-day percentage fall in Chinese margin deployment since '18), we are nowhere near the levels (both in terms of margin deployment and liquidation) seen in the '15 meltdown.
Fig. 1: China Outstanding Margin Balance (CNY 000 Mn)

Source: MNI Market News/Bloomberg

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Recent headline flows on the broader wires provides comments from the CSRC, noting that it will guide brokerages re: adjusting margin call levels.

  • The regulator went on to note that it will guide securities firms to maintain flexibility re: the closing out of positions by extending the time permitted for adding collateral to accounts, along with other “dynamic” moves, in a bid to reduce the forced liquidation of positions and related market pressure.
  • A quick reminder that margin usage re: Chinese equities has tumbled in recent weeks, suggesting that the forced exit of levered long trades has contributed to the weakness observed in Chinese equities.
  • Zoom out on those charts though. While the move looks relatively aggressive in the short-term (Friday's tumble represented the largest one-day percentage fall in Chinese margin deployment since '18), we are nowhere near the levels (both in terms of margin deployment and liquidation) seen in the '15 meltdown.
Fig. 1: China Outstanding Margin Balance (CNY 000 Mn)

Source: MNI Market News/Bloomberg