China launched a pilot program Thursday allowing selected brokerages to borrow money via an intermediate securities finance company and re-lend to clients for margin trading, a move that could inject billions of yuan into the nation's sluggish stock markets.
A total of 11 brokerages including Haitong Securities Co and CITIC Securities Co will be able to borrow cash from the State-owned China Securities Finance Corp, which was set up last October with a total registered capital of 12 billion yuan ($1.9 billion).
"Theoretically the investors could borrow up to 120 billion yuan under the pilot program, based on the leverage ratio of 10 that the regulator has required," Tu Chunhui, general manager at the research department at China Development Bank Securities, told the Global Times.
Tu noted that although this amount of capital is relatively small compared with the total value of the Shanghai and Shenzhen stock markets of more than 20 trillion yuan, it could still boost confidence in the two stock markets.
Shares in the brokerage sector witnessed a dramatic rise Thursday, with Sinolink Securities Co hitting its daily limit, and shares in Western Securities Co rising 5.68 percent by close of trading.
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