Recently, the Shanghai Stock Exchange ("SSE") and the Shenzhen Stock Exchange ("SZSE"), jointly with the China Securities Depository and Clearing Corporation Limited ("CSDC"), have issued their respective Measures for Stock Pledged Repo Transactions and the Registration and Settlement Business (Revised in 2018) (the "Measures"), with effect from March 12, 2018.
The Measures contain amendments in the following respects. The first is further focusing on the positioning of serving the real economy. It is made clear that the repurchase party (or the borrower) should not be a financial institution or any product it has issued, and funds borrowed under the stock repo should be used in production and business activities for the real economy and be managed in a separate account; and that the minimum amount of the initial transaction made by the repurchase party should be CNY5 million, and each of its subsequent transactions should be no less than CNY500,000, and funds and bonds will no longer be recognized as initial pledged objects. The second is further strengthening risk management. It is expressly stated that the stock pledge rate is capped at 60 percent, and the proportion of pledged A-shares of each type accepted by a single securities company and each asset management product as the reverse repurchase party (or the seller) should be 30 percent and 15 percent at the maximum respectively, and the total of A-shares of each type pledged in the stock market should be up to 50 percent. The third is further regulating business operations. Qualifications for securities companies to carry out such business are specified, and that securities companies are required to establish the mechanism for continuity management of credit risks of repurchase parties and the follow up management of the use of funds.