Chinese mainland stock exchanges started Wednesday to require investors to sign risk acknowledgement memos with brokers before they begin trading warrants, in the latest attempt to curb potential irregularities.
New investors must go to brokerage houses themselves and sign the memos to acknowledge they are aware of possible risks in trading warrants, according to the Shanghai and Shenzhen stock exchanges.
The move is aimed at educating investors to trade warrants rationally and to help curb manipulation and misconduct during the opening of investor accounts, the two bourses said in a statement.
China's securities authorities are increasing efforts to combat misbehavior in the trading of warrants, a financial derivative introduced in 2005 that can be bought and sold unlimited times each session, compared with only once for normal stock. Warrants allow the holder to buy a stock at a specific price over a specific period.
The two exchanges last month unveiled a set of guidelines to restrict investor accounts suspected of conducting abnormal warrant trading and ordered brokerages to boost oversight.
The bourses also sent a string of warning letters to securities companies and their investors. They required brokers not to execute irrational or irregular orders by clients and report those cases.
"The fresh edict reflects regulators' jitters over more speculation, which could lead to growing bubbles and spark investor unrest," said Zhu Weiming, a China Galaxy Securities Co dealer.
"But what seems to be more effective to quell speculation is to boost supply by letting brokers issue covered warrants."
The cumulative value of warrants accounts only for a fraction of total mainland equities, but their combined trading turnover has made up nearly half of the stock market in the latest trading sessions.
Regulators now allow brokerages only to sell warrants over shares of firms whose controlling shareholders have already offered free warrants to minority investors in exchange for the right to unload their previously non-tradable equities.
Authorities have yet to give a clear timetable for the launch of covered warrants, a move that will let brokers create warrants on any listed firms' shares. Such a move is expected to largely bolster quality chips.
(Shanghai Daily August 2, 2007)
