Several companies, such as Citic Securities Co. and East Money Information Co., have recently elevated compliance standards for clients seeking leverage or engaging in derivatives trading, according to sources familiar with the situation who preferred to remain anonymous. The two brokerage firms did not respond to inquiries for comment.
The initiatives involve stricter evaluations of clients’ financial status, trading experience, and risk tolerance prior to granting access to margin financing or options accounts, the sources stated. At several brokerages, investors who opened new accounts in the last six months or who have faced frequent margin calls will face limitations on further borrowing.
This crackdown highlights Beijing’s increasing caution regarding equity market leverage, as significant retail losses pose a threat to broader financial and social stability. Authorities are concentrating on highly leveraged trading, which can lead to forced liquidations and exacerbate market downturns.
“Excessive leverage in particular sectors has heightened the risk of market instability,” remarked Wang Chen, a partner at XuFunds Investment Management Co. “While these risks seem to have moderated, they are likely not completely resolved and will continue to be a regulatory priority moving forward.”
Retail investors poured into Chinese stocks during this year’s rally, heavily relying on borrowed funds to pursue profits. However, as market volatility surged, a growing number of retail traders were compelled to exit their positions in late July, according to brokerage account managers.
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