China's top securities regulator on Friday unveiled regulations on the pilot programs for the soon to be launched margin trading and short selling business.

Securities firms must have at least 5 billion yuan in net assets and be rated as A-class in order to be qualified for the business.

The regulator also required securities firms to have sufficient capital holdings and stocks of their own and have completed test runs of the trading network in order to conduct the business.

"We will gradually loosen the requirements and expand the pilot programs to more securities firms after the first batch of selected firms achieve successful results," said an official from the China Securities Regulatory Commission (CSRC).

The regulator also asked qualified securities firms to choose clients carefully based on the review of their financial status, trading experience and risk preference. The purpose is to restrict investors with low risk tolerance and insufficient trading experience from the business, the CSRC official said.

In 2008, the CSRC picked 11 top brokerages for test runs of the trading network, including CITIC Securities, Haitong Securities, Guotai Junan, Shenyin Wanguo and Everbright Securities. It was reported that the CSRC would pick six to seven domestic brokerages from the 11 candidates for the initial phase of the trial program.

The CSRC did not reveal what stocks would be the target for margin trading and short selling but said the selection would be based on the stocks' market value, turnover rate and volatility.

Margin trading and short selling will allow investors to borrow money to buy securities or borrow securities to sell.

Once launched, the business is expected to account for 15 to 20 percent of the securities industry's revenue, analysts said.

Chinese equities fell on Friday, driving the benchmark index to its biggest weekly loss in more than a month, amid concern the government would raise interest rates to cool the world's fastest-growing major economy.

The Shanghai Composite Index on Friday fell 30.28, or 1 percent, to 3128.59 at the close. The gauge lost 3 percent this week, its biggest retreat since the period to Dec 18. The CSI 300 Index declined 1.2 percent to 3366.20.

CITIC Securities Co, the biggest listed brokerage, retreated 2 percent to 29.21 yuan on concern stock market declines will sap investors' demand for equities. Haitong Securities Co, the second largest, retreated 2.9 percent to 17.27 yuan.

While banks gained on Friday as funds increased holdings after recent declines made the stocks cheaper relative to the broader market. ICBC rose 1.2 percent to 5.08 yuan and China Construction Bank rose 2.2 percent to 6.02 yuan.