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China’s securities regulator, the China Securities Regulatory Commission (CSRC), has reportedly lifted the ban on net selling for major mutual fund companies, allowing them to sell more shares than they buy daily.
The decision reverses a restriction imposed late last year to stabilize the stock market, which was among the world’s worst performers.
Background and Previous Measures:
Last year, the CSRC implemented measures to prevent major mutual fund companies from engaging in the net selling of shares on any given day.
This move was in response to calls from top leadership to stabilize the market, particularly the CSI300 Index, which experienced an 11% slump amid challenges like a faltering post-COVID economic recovery, a deepening property crisis, and geopolitical tensions.
Policy Shift and Possible Motivations:
The recent decision to remove the net selling restriction is a significant policy shift. One source with direct knowledge of the change suggested that the move might be partly driven by increasing redemption pressures on funds.
Previously, fund managers faced regulatory scrutiny and calls if they net sold stocks at the end of the year. The relaxation of this restriction is speculated to alleviate financial pressures on funds, enabling them to meet redemption demands more effectively.
Disappearance of Unofficial Guidance:
Sources have noted the disappearance of unofficial, verbal guidance from regulators, commonly called “window guidance.”
Recently, this guidance, which often shaped industry behavior, has become less prevalent. Removing net selling restrictions signals a departure from the regulatory stance adopted to stabilize the market last year.
Market Implications:
The policy change is expected to impact market liquidity, allowing mutual fund managers more flexibility in managing their portfolios.
This move comes against the backdrop of a challenging economic environment, and the authorities may aim to support the financial sector by easing restrictions on market participants.
