April 13, 2018 / 9:08 AM / 10 months ago

UPDATE 1-China to restrict short-term borrowings by brokerages

(Writes through, adds details)

BEIJING, April 13 (Reuters) - China’s central bank published rules on Friday to restrict the issuance of short-term financing notes by brokerages, the latest effort by Beijing to reduce leverage in the financial system.

The outstanding balance of short-term notes and other short-term financing tools is capped at 60 percent of a brokerage’s net capital, the People’s Bank of China said in notice. This ceiling will be adjusted every six months in accordance with securities firms’ respective liquidity situations.

The rules are aimed at “helping securities firms improve liquidity management, and promote healthy development of the money market,” according to the notice, which was published on the website of the China Central Depository & Clearing Co.

China has been stepping up its deleveraging campaign as President Xi Jinping vowed to reduce systemic risks in the financial system following years of reckless expansion by financial institutions.

Over the past months, China has restricted borrowings by financial institutions via money market tools such as the negotiable certificate of deposits (NCDs) and bond repurchase agreements. Regulators have also curbed growth of money market funds.

Brokerages have been issuing short-term financing notes to fund long-term, capital intensive businesses such as margin lending.

According to the notice, dated April 12 but published on the government website on Friday, brokerages eligible to issue short-term notes must have a relatively high liquidity level, and be able to manage liquidity risks properly.

Brokerages which have issued short-term notes already must submit quarterly reports to PBOC that include information on net capital and risk-management indicators, as well as the outstanding balances on various short-term financing instruments. (Reporting by Beijing Monitoring Desk Editing by Jacqueline Wong and Sam Holmes)

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