China has introduced a short-selling clampdown after seeing close to a US$5 trillion slump in the value of its stock markets over the past three years.
Under the new rules that came into effect today, there will be "a complete suspension of the lending of restricted stocks", said the China Securities Regulatory Commission (CSRC), the stock market regulator.
Additional rules will be introduced on 18 March, said the CSRC.
Stock lending is a key component of short-selling, where investors sell shares or assets they don’t own in the expectation the price will go down.
If they do, the short-seller buys them back at the lower price and makes a ‘turn' or profit on the difference. Shares (usually) are borrowed and lent to keep positions open.
China’s premier Li Qiang last week demanded authorities take more "forceful" measures to stabilise financial markets.
A growing property crisis, economic slowdown and tensions with the US are the roots of the problem, with just this morning beleaguered property group Evergrande told to liquidate its assets.
Many of Hong Kong-based Evergrande’s property assets are in mainland China, while it it has debts of more than US$300 billion following a rush of speculative developments.
Funding for this building has come from the country's secondary banks, which are now effectively bankrupt in many cases.
Zhongzhi, the largest of these shadow banks, has filed for bankruptcy with its management under investigation for criminal activity.
The UK, US, France and Germany all imposed temporary short-selling restrictions following the financial crash of 2008.