China raises minimum margin requirement to lower stock market leverage

China's major stock exchanges raised the minimum margin requirement for margin trading on Wednesday — a move aimed at moderating leverage and promoting the capital market's long-term stability and healthy development.

The move came after A-share market turnover surged to a record 3.7 trillion yuan ($530.4 billion) in a single session on Tuesday, marking the third consecutive day with turnover above 3 trillion yuan. Analysts said the adjustment reflects regulators' focus on guiding the market toward stable and rational development, rather than overheated short-term speculation.

With approval from the China Securities Regulatory Commission, the Shanghai, Shenzhen, and Beijing stock exchanges announced on Wednesday that the minimum margin ratio for investors' margin purchases of securities was lifted from 80 percent to 100 percent.

The adjustment means investors will be required to use more of their own funds when financing stock purchases, leaving less room for borrowing and lowering leverage in new margin trades.

The exchanges lowered the minimum ratio from 100 percent to 80 percent in August 2023, a move that helped support a steady rise in financing balances and trading turnover.

"Recently, margin trading has become notably more active and market liquidity has been relatively ample," the Shanghai Stock Exchange said in a statement.

"In line with statutory counter-cyclical regulatory arrangements, moderately bringing the requirement back to 100 percent is conducive to appropriately reducing leverage levels, better protecting investors' legitimate rights and interests, and fostering the market's long-term stable and healthy development," the exchange said.

The exchange clarified that the adjustment applies only to newly opened margin trading contracts. Existing margin trading positions agreed before Wednesday and their contract rollovers will continue to follow the previous rules.