Exclusive: China regulators ask funds to curb short selling of stock index futures -sources

A Chinese national flag flutters outside the China Securities Regulatory Commission (CSRC) building on the Financial Street in Beijing, China July 9, 2021. REUTERS/Tingshu Wang/File Photo Acquire Licensing Rights

China's securities regulators have asked some hedge fund managers to restrict short selling in its stock index futures market, two sources said, as authorities seek to stabilise sinking stocks.

The blue chip CSI300 Index (.CSI300), plunged to near five-year lows this week, prompting fresh vows by the government to steady capital markets.

A hedge fund manager said he received calls from China's financial futures exchange, cautioning against reckless short selling, especially "naked" short selling that is not conducted for hedging purposes.

Another hedge fund source said the exchange had informally asked his firm recently not to short sell for speculative purposes.

"Shorting is profitable in a falling market," the source said. "But if you get calls from the exchange, you get the message that you should no longer short sell to make a profit."

The sources spoke on condition of anonymity.

The China Financial Futures Exchange (CFFEX) did not reply to a Reuters request for comment. Nor did the China Securities Regulatory Commission (CSRC), which oversees the exchange.

China's stock market tumbled 13% in 2023 and has extended its slide in the new year amid relentless foreign selling, a deepening property crisis and shaky economic recovery.

On Tuesday, CSRC Chairman Yi Huiman vowed to safeguard the stable operation of the capital markets with full force. China's State Council, or cabinet, also pledged more forceful and effective measures to support market confidence.

The sources said regulators did not spell out specific curbs in their informal guidance, but hinted that shorting activities using stock index futures would be curbed.