© Reuters. FILE PHOTO: Investors wait for China’s stock market to open in front of an electronic board at a brokerage house in Beijing, China, January 8, 2016. REUTERS/Jason Lee/File Photo
SHANGHAI/SINGAPORE (Reuters) – China’s securities watchdog is asking brokerages to restrict leverage available to hedge funds that borrow large sums of money via a complex derivative business to trade stocks, three sources told Reuters.
Hedge funds using the so-called DMA-Swap strategy were told by their brokers late on Wednesday to start limiting leveraged bets, two sources who received notices from regulators said.
A source at one of China’s big brokerages confirmed the guidance, citing regulators’ concern over market risks.
Through the DMA-Swap, hedge funds can borrow up to $4 against every $1 they deposit with the broker in the margin account, while also skirting regulatory borrowing limits by having such trades sit on brokers’ books.
The new restrictions come after China’s securities watchdog vowed to strengthen supervision and prevent risks in a volatile stock market.
Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC) told a conference on Wednesday that…
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