Beware of Stock Market Leverage! Chinese Brokers Report Strengthened Client Reviews to Prevent Excessive Financing Risks

As mainland China's stock market experiences significant volatility recently, regulatory authorities and securities institutions are jointly taking action to curb excessive speculative behavior in the market.

According to insiders, major brokers such as CITIC Securities and East Money have significantly raised compliance requirements for clients seeking leveraged or derivatives trading. The move primarily targets high-risk areas such as margin trading, securities lending (trans-repo), and options trading, aiming to prevent chain reactions caused by excessive leverage.

Specific measures include stricter reviews of investors' financial status, trading experience, and risk tolerance before approving margin or options account openings. To further reduce risks, several brokers have begun restricting additional borrowing for investors who opened accounts within the past six months and those frequently receiving margin calls.

This tightening of reviews reflects the government's high alertness to stock market leverage, fearing that large-scale retail investor losses could translate into financial system instability and even affect social stability.

Looking back at the first half of this year, China's stock market saw a rally driven by the artificial intelligence (AI) boom, attracting a large number of retail investors. Data shows that 960,660 new margin trading accounts were opened in the first half, a 60% increase year-on-year. In June alone, approximately 179,000 new accounts were added, a 77% year-on-year increase, indicating strong retail demand for leveraged bets.

However, excessive concentration of leverage also poses hidden risks. Wang Chen, partner at Xufang Investment, pointed out that excessive leverage concentration in certain sectors increases market instability risks. Although the situation has eased somewhat, it will remain a future regulatory focus.

The market's sharp correction confirmed these concerns. The CSI 300 Index reached its highest level since the end of 2021 in June before quickly retreating. The ChiNext Index and STAR 50 Index, concentrated in tech stocks, plunged more than 20% in July. As market volatility intensified, a large number of retail investors were forced to liquidate positions in late July. Meanwhile, the total margin balance across the market dropped from over 3 trillion yuan at the end of June to 2.6 trillion yuan by the end of July.

Despite recent regulatory pressures and market adjustments, the securities industry posted strong profits in the first half of this year. CICC estimates that 42 listed brokers achieved a combined net profit of 142.5 billion yuan in the first half, a 50% year-on-year increase. Among them, CITIC Securities' net profit surged nearly 70%, setting a new record high.