(Bloomberg) -- China has a new strategy to avert sharp market declines -- and it looks like it may be working.
The China Securities Regulatory Commission last week urged brokerages to ask investors with stock pledges to add to their collateral when share prices drop below critical levels, instead of closing out the positions, according to people familiar with the matter. Shares on the mainland -- where state intervention in stocks is relatively commonplace -- rose on Monday after their worst week since 2016, the only major Asian market to post gains amid a broad selloff.
The CSRC made the request in an internal meeting last week, said the people, who asked not to be identified because the matter hasn't been publicly disclosed. The regulator is asking borrowers to add to their pledges using cash, more shares or even property in order to avoid sharp declines in share prices, the people said. The CSRC did not immediately respond to a fax seeking comment.
The move underscores Chinese leaders' continued focus on stability in the nation's $8 trillion stock market. Policy makers have intervened regularly to support stocks since the nation's equity bubble burst in 2015, stepping up efforts during periods of extreme volatility or national importance. They've also sought to limit gains, as seen last year before the twice-a-decade Communist Party congress.
Mainland shares rebounded from their worst week since 2016, with the Shanghai Composite Index reversing earlier losses to advance as much as 0.7 percent on Monday. It was the rare standout on a day stocks tumbled from Japan to Hong Kong as investors adjusted to a surge in global bond yields.
China's securities regulator will also permit companies to roll over existing loans they obtained by pledging shares at brokerages, even if their shares being used as collateral exceed a certain threshold, people familiar with the matter said.
--With assistance from Amanda Wang and Zhang Dingmin
To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net.
To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Richard Frost at rfrost4@bloomberg.net, Sarah McDonald
©2018 Bloomberg L.P.
With assistance from Steven Yang
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