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China's Miniu becomes first firm to exit margin lending after fresh crackdown

[SHANGHAI], a Chinese P2P company that provides loans to stock investors, has become the first firm to publicly announce an exit from this type of business, in response to regulators' renewed crackdown on grey-market margin financing.

China's securities regulator on Sunday warned brokerages not to open their trading systems to firms engaged in illegal businesses, and instructed them to review trades and enforce rules that require the use of real names and national identification numbers.

In the lightly regulated grey-market for margin lending, so-called "fund-matching" companies distribute loans for leveraged stock purchases, and their clients typically trade in subdivided securities accounts via trading platforms connected to brokerages, often without using their own identities.

Miniu, which has helped fund stock investments worth 4.9 billion yuan (S$1.07 billion), said in a statement on its website that it would stop its margin lending business in response to government requirements.

An explosive growth in margin financing fueled China's year-long bull run, but a mid-June crackdown on leveraged trading triggered a 30 per cent plunge in main indexes and caused weeks of anxiety in global markets.

Signs of stability in the mainland markets have emerged over the past two trading sessions, after the government unleashed a barrage of support measures to stem the rout.

The China Securities Regulatory Commission said it is launching the latest clean-up because "as the stock market stabilizes recently, there are signs that illegal activities are coming back, potentially endangering stable operation of the stock market again."