In an attempt to stabilize the plunging stock market, China’s securities regulators have reportedly reached out to hedge fund managers, advising them to limit short selling in the stock index futures market.

What Happened: The China Securities Regulatory Commission (CSRC) has contacted several hedge fund managers, urging them to curb short selling in the stock index futures market, Reuters reported on Wednesday, citing two sources. The move is part of the government’s efforts to stabilize the stock market, which has seen a significant downturn.

One hedge fund manager disclosed that the China Financial Futures Exchange (CFFEX) had cautioned against reckless short selling, particularly “naked” short selling that is not conducted for hedging purposes. Another source stated that the exchange had informally advised their firm to refrain from short-selling for speculative purposes.

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Despite the lack of specific restrictions in the informal guidance, regulators hinted at curbing shorting activities using stock index futures. Some investors were nudged to unwind their heavy short positions as soon as possible.

Why It Matters: The Chinese stock market has been experiencing a downward trend, with the blue-chip CSI300 Index reaching near five-year lows. This has led to the government making fresh commitments to stabilize the capital markets. The market’s decline has been attributed to various factors, including a deepening property crisis, shaky economic recovery, and relentless foreign selling.

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