Share prices on Shanghai and Shenzhen bourses rebounded more than one percent in the morning trade after China issued new rules effective Tuesday to tighten short selling activities in an attempt to stabilize the market.
Investors are no longer able to borrow shares and cover the short position on the same trading day, according to statements released by the Shanghai and Shenzhen stock exchanges after Monday's trading session. Instead, investors must wait for the next trading day to pay back the shares they borrowed, adding to the uncertainty of the profits investors may lock in.
In short selling, speculators sell shares borrowed from lenders and buy back the stocks to cover the loan at a later time in the hope that share prices will fall during the period so they can earn the difference. The so-called T+1 rule is aimed at avoiding market volatility caused by speculative same-day trading, according to the Shanghai stock exchange.
The new rule came after a chain of actions aimed at stabilizing the stock market, including freezing accounts with trading irregularities and curbing automated program trading by the regulators.
On Tuesday, the Shanghai Composite Index opened 0.03 percent lower at 3,621.86 points. It gained 1.34 percent to 3,671.49 by midday. The Shenzhen Component Index opened 0.01 percent higher at 12,163.12 and gained 1.77 percent in the morning trade. The ChiNext Index, tracking China's NASDAQ-style board of growth enterprises, opened 0.12 percent lower at 2,396.41 points but soared 2.41 percent by midday.
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