China’s securities regulator exposed 258 funding platforms that illegally lend money to investors for buying stocks, reported Caixin. Since May, local branches of the China Securities Regulatory Commission (CSRC) have spotlighted a blacklist of illegal funding platforms that pitch their business via cold telephone calls and social media advertisements.
Securities margin lending is the exclusive business of licensed brokerages, and undercover margin lending is illegal for other institutions or individuals, the CSRC said Wednesday in a statement.
The regulatory commission warned investors to voluntarily avoid illegal funding platforms and report to the authorities if they get swindled by such platforms. In margin borrowing, investors pledge the shares they buy as collateral for the loan. The margin is the difference between the amount of the loan and the value of the securities used as collateral.
The recent surge in China’s stock market has revived the margin lending business, which was blamed for China’s 2015 stock market crash. When the value of shares fall below the amount of margin loans, investors have to sell to repay the borrowing. This can have the effect of accelerating a market downturn.