(Bloomberg) -- China will halt the lending of certain shares for short selling from Monday, the securities regulator announced Sunday, in a move to support the country’s slumping stock markets. 

Strategic investors won’t be allowed to lend out shares during agreed lock-up periods, the Shanghai Stock Exchange and Shenzhen Stock Exchange said in separate releases following the China Securities Regulatory Commission’s statement. 

Read More: Why China Is Trying to Curb Short Selling of Stocks: QuickTake

“The move may have limited impact in terms of stabilizing the market” as some estimates show that such security lending balance is of insignificant size, said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. “Still, this is a good gesture as market participants had been calling for regulators to step in on this front.”

While the bourses didn’t define strategic investors, it typically refers to holders with restricted shares.  

An equity gauge of onshore Chinese brokers underperformed Monday, falling more than 1%. The broader CSI 300 benchmark slipped 0.2%. 

Authorities are taking measures following an alarming slide in Chinese stocks — the MSCI China Index has lost 60% from a February 2021 peak. Last October, limits were put on the lending of shares that executives and other key employees get in strategic placements, and other curbs were imposed. Since then, the outstanding value of stocks lent by strategic investors has dropped 40%, the CSRC said Sunday.

The MSCI China gauge scored its first weekly gain of the year last week, trimming its loss for 2024 to about 7%, after the central bank announced an imminent reserve requirement ratio cut and plans for targeted stimulus.

Read More: China Signals Targeted Stimulus to Follow Abrupt RRR Cut 

Bloomberg reported earlier that state-owned Citic Securities Co. had stopped lending stocks to individual investors and raised the requirements for institutional clients after so-called window guidance from regulators.

The limit on short selling, however, is unlikely to give stocks a sustainable boost as sentiment remains weak. In 2015, China restricted short selling to force out day traders, whose selling and buying on the same day was seen as fueling “abnormal fluctuations.” However, the market continued to slide in the following months.

The CSRC also vowed Sunday to crack down on the bypassing of lock-up restrictions. From March 18, securities finance firms that borrow shares from institutional investors will have to wait one day before providing them to brokerages instead of the stock being immediately available, according to Sunday’s statement.

Read More: When Stocks Crash, China Turns to Its ‘National Team’: QuickTake

“China’s tightening on short-selling is set to trigger a temporary upswing in growth-oriented sectors like new energy and electric vehicles, which are already buoyed by ongoing state support with a relatively bright outlook,” said Hebe Chen, an analyst at IG Markets. “However, this measure appears to be more of a short-term remedy, lacking any effective medicine to address the root causes contributing to the recent stock market meltdown.”

Ping AN Securities Co Ltd. said that as of Jan. 25, the balance of A-share securities lending was 70.5 billion yuan ($9.8 billion), a 13% decrease from the end of September 2023. The broker cited Wind data.  

--With assistance from April Ma, Ken Wang, Charlotte Yang, Ishika Mookerjee and Jiyeun Lee.

(Updates with Monday’s market moves)

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