China's securities regulator lift ban on net selling of stocks by Mutual Funds

CSRC lifts ban: China's securities regulator has reportedly lifted the ban on mutual fund (MF) managers selling more shares than they buy each day, according to three sources. This move reverses a restriction implemented late last year to support a struggling stock market. 

The China Securities Regulatory Commission (CSRC) had prohibited major mutual fund companies from engaging in net selling of shares daily in response to concerns about market stability. The change is believed to be influenced in part by increasing redemption pressures on funds.

Sources suggest that the shift in policy may be connected to the challenges faced by funds in repaying redeeming investors if they are unable to net sell stocks. In the past, regulators would reportedly contact funds that engaged in net selling, but such calls have not been received this year. 

The removal of this so-called window guidance, which involves unofficial verbal advice from regulators, has been noted in recent days.

The decision to lift the net selling restriction comes amid a challenging economic environment for China, with the CSI300 Index falling 11 per cent in the previous year. 

Despite various government support measures, including a reduction in stamp duty on trading and restrictions on share sales by listed companies, the CSI300 index ranked among the world's worst-performing markets in 2023. 

The CSRC has also encouraged major mutual fund managers to prioritise the launch of equity-based funds over those based on other securities in its latest market-supportive measure.

The ongoing selling pressure has contributed to the CSI300 index reaching its lowest level in nearly five years, reflecting concerns about the domestic economy's strength and escalating tensions with the United States and its allies. 

The CSRC has not immediately responded to requests for comments on these developments.

(With Reuters Inputs)