Legal Issues Research On Chinese Margin Purchase And Short Sales

Margin purchases and short sales is a mature system widely adopted by overseas securities markets, including two parts of margin trading and short selling. Margin purchases and short sales has some active effects such as advancing market liquidity, mitigating market volatility, forming reasonable prices, hedging the risks and making profits for the institutions. It is an important way to improve market mechanism, push ahead the products innovation and promote the resources reasonable disposal. In a mature securities market, Margin purchases and short sales is very popular because of its special mechanism and great attraction to investors. But, margin transition can lead to speculation. So, in order to prevent those negative impacts brought by margin trading and short selling, Chinese laws and regulations had forbidden this kind of transaction for a long time. However, in 2006, new securities law and regulations were decreed, which paved the way for the introducing of margin purchases and short sales into Chinese securities market, which means the conditions of the securities market have gradually matured and the carry-out of margin purchases and short sales has entered a substantive stage.After ten yeas of development, Chinese security market has gained great achievements in many respects. But, undeniably, Chinese security market is still in the transitional period, some problems are directly restricting its development. Recently, the development of margin purchases and short sales in our country is still in preliminary stage, thus a basic premise of the pilot is to correctly evaluate the practical experiences of overseas securities markets .Based on a comprehensive and in-depth study of the history and systems design of margin purchases and short sales in foreign security markets, as well as taking the overall situation of Chinese securities market into consideration, this paper insists that it's very important to introduce margin purchases and short sales into Chinese security market. Besides, a number of basic issues involved in preliminary stage have been discussed, such as the participants, the standards of subject securities and the rate of margin requirement etc, which constitutes a fundamental institutional framework of margin purchases and short sales.Despite some holdback in the way of bringing the margin purchases and short sales into operation, in anyway of the market scale, the market bodies even the technique, Chinese securities market has already got the basic factors to operate that. This paper is trying to give a description of the problems of our margin purchases and short sales in the following two ways; legality and rationality. We are looking for a way to get over those problems by making rules when the margin purchases and short sales turn to officially operation from tentative.