China to encourage domestic short selling

China will soon launch measures to bolster the country’s short-selling industry as Beijing seeks to deepen its capital markets, the Financial Times reported, citing securities officials. Regulators plan to create the Centralized Securities Lending Exchange (CSLE) early this year, a body that will facilitate short selling by lending shares to qualified domestic fund managers for a fee. Currently, fund managers can only borrow from brokerage firms that have a license and meet high capital requirements. China’s market regulator, the China Securities Regulatory Commission, will be the largest shareholder of the new exchange. Critics charge that short selling increases market volatility, while others argue that the practice can increase market liquidity and will encourage the development of the hedge fund industry. China introduced short selling in 2010 but continues to tightly restrict the number of shares that asset managers can borrow.