CHINA: China short selling to be permitted through Shanghai-Hong Kong Stock Connect

Monday October 6 2014

China short selling is to be permitted for the first time through the Shanghai-Hong Kong Stock Connect system which is to launch later this month

Investors in Hong Kong will be able to take covered short positions in Shanghai-listed shares under the Shanghai-Hong Kong Stock Connect scheme. The latest rules also allow margin trading.

However, HKEx has warned that these services will probably not be available when the scheme is launched, to allow times for trading systems to be updated.

Naked short selling remains prohibited. Covered short selling will be permitted, subject to a time limit of one month on any stock borrowing and lending agreement. Market participants are awaiting clarity as to whether shares obtained outside the Connect scheme can be sold short.

Margin trading will be allowed for certain A-shares under the scheme. HKEx will post the securities eligible for margin trading on its website. The Shanghai Stock Exchange will also have the right to suspend margin trading in the A shares when volumes exceed the threshold, matching existing rules in the mainland market.

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