China Securities Regulatory Commission Halts Restricted Shares Lending Amid Market Instability

According to Cointelegraph: In response to ongoing stock market turbulence, the China Securities Regulatory Commission (CSRC) has announced the suspension of restricted shares lending in an effort to curb short-selling tactics often employed by investors. Shanghai Stock Exchange Composite Index performance over the past year. Source: Google Finance Restricted shares, which are subjected to sale and transfer restrictions imposed by corporate governance policies or as part of employee remuneration plans, will no longer be available for lending from January 29, as per the CSRC's announcement on WeChat. To balance the market, these shares are commonly lent to traders engaging in derivatives contracts, including short sales. The CSRC emphasized that these new regulations are directed towards ensuring "fairness and reasonableness" by reducing the efficiency of securities lending and restricting the institutional advantage in using information and tools. The ultimate aim is to provide all investors ample time to process market information for a fairer market order. This intervention is the latest among several aimed at limiting capital outflows. In a former move, China's largest brokerage disallowed lending stocks to retail investors and increased margin requirements for institutional investors as a response to window guidance from regulators. Another step involved increasing supervision of arbitrage activities and restricting shares lending by strategic investors. Short-selling, a strategy where an investor borrows shares and sells them in hope that the share price will fall, is applied by investors suspecting overvaluation or an imminent decline of a stock. China's stock market has experienced substantial challenges over the past year, with the CSI 300 Index benchmark and the MSCI China Index falling by 11% and almost 10% respectively. Additionally, foreign investors have been increasingly less confident in the Chinese market, selling over 170 billion yuan (US$23.4 billion) worth of onshore stocks from July to November of the previous year. Despite these hurdles, China continues to invest heavily in its central bank digital currency (CBDC) projects, with numerous use-cases for the digital yuan under development.