Regulation on intraday trading to be developed

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The Ministry of Finance is consulting about a draft circular guiding trading of securities, fund certificates, corporate bonds and covered warrants which are listed and registered for trading on the securities trading system.

That is specified in the draft Circular guiding trading of securities, fund certificates, corporate bonds and covered warrants which are listed and registered for trading on the securities trading system.

The Draft Circular stipulates that investors are allowed to perform intraday trading after signing intraday trading contracts with securities companies providing securities lending service. The intraday trading contract must contain a term allowing securities companies to perform compulsory borrowing and buying transactions to support payments in case of a shortage of securities for transfer. The intraday trading contract must clearly state the arising risks, damages and costs that investors must pay.

The drafting agency states that the intraday trading must comply with the following principles that investors are only allowed to open one intraday trading account at each securities companies where investors open securities trading accounts. Intraday trading account is a separate account or separately managed or is accounted as a sub-account of the investors’ existing securities trading accounts. Securities companies must separate the intraday trading accountfrom securities trading accounts and margin trading accounts (if any) of each investor.

In addition, it must also ensure the principle of not performing intraday trading for odd-lot transactions and put-through transactions.

Securities companies have the right to choose securities codes in the list of listed securities for margin trading to perform intraday trading for investors. The list of securities traded in a day must be publicizedon its website by the securities company.

The draft circular also states that investors are responsible for issuing trading orders, ensuring that the total number of securities on the selling orders is equal to those of same code on the purchase orders on the same trading day and vice versa. In case the total number of securities on the selling order is more than those on the purchase order or vice versa, securities companies are responsible for paying on an investor's behalf the amount of insufficient money or insufficient securities at the payment date.

In addition, securities companies must refuse to carry out the investor's intraday trading order when they do not have money for payment or enough securities for transfer at the payment date.

Notably, the draft clarifies that investors are responsible for compensating damages and paying securities companies all arising costs related to compulsory purchase, securities borrowing andmoney borrowing to support payment in case of insufficient money for the payment and insufficient securities for transfer at the payment date in accordance with relevant laws. Securities companies also have the right to request investors to deposit money or securities before allowing them to perform intraday trading.

In a trading day, the total intraday trading value (determined on the total purchase value and selling value) in each securities company must not exceed a prescribed rate compared to the company’s equity; at the same time, not exceed a prescribed rate compared with the average daily trading value of the preceding month of the same securities company. The volume of securities traded during the day in each securities company must not exceed a prescribed rate compared to the volume of outstanding securities. These rates are in accordance with the Regulations of the State Securities Commission.

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The Draft Circular stipulates that, in case of necessity to stabilize the market, the State Securities Commission has the right to request suspension of intraday trading.