China Is Said to Restrict Stock Sales by Brokerages, Funds

(Bloomberg) -- China’s securities regulator tapped some brokerages and funds to support the stock market amid an onslaught of selling on concern the spreading coronavirus will deepen a slowdown in the world’s second-biggest economy, people familiar with the matter said.

The China Securities Regulatory Commission told some brokerages that their proprietary traders aren’t allowed to be net sellers of equities this week, said the people, asking not to be identified discussing a private matter. Brokerages are on Monday only allowed to sell to meet redemptions by investors, according to the people.

Shares nevertheless plummeted, posting the biggest declines since an equity bubble burst in 2015.

Chinese authorities have a long history of intervening to limit losses in equities -- both directly and through issuing guidance to brokerages -- with mixed success. While state buying is credited with helping to end the rout in 2015, there was a $5 trillion wipeout before the recovery started to take hold.

Regulators unveiled a package of measures over the weekend to ensure stability of its $45 trillion financial system as the nation stepped up the fight against the virus outbreak. The central bank cut rates and supplied 1.2 trillion yuan ($171 billion) to money markets on Monday.

The CSRC said it would halt night sessions for futures trading and allow some share pledge contracts to be extended by as long as six months.

The CSI 300 Index dropped as much as 9.1% as onshore financial markets opened for the first time since Jan. 23. It fell 8.2% as of noon.

The outbreak of the new coronavirus has wrecked what would otherwise be a strong period for retail sales, with hundreds of millions of Chinese traveling and spending during the new year celebrations. The disease emerged just as China’s economy was picking up steam after the nation secured a phase-one trade deal with the U.S. and it saw signs of an upturn in manufacturing.

The CSRC said on Sunday it has studied measures to hedge risks and ease market panic and will be on high alert on Monday. It said it weighed “all factors” when deciding to reopen trading Monday, rather than delaying it further.

The nation’s state funds are also ready to intervene anytime on Monday to stabilize the market, some of the people said. The CSRC suspended securities lending, one of the few short selling tools available in China, from Monday until further notice, the people said.

Some funds have received so-called window guidance from regulators to avoid actively selling stocks unless they can’t cope with redemption requests, some of the people said.

The CSRC didn’t immediately respond to an email seeking comment.

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