Interactive Brokers Bans Borrowing to Buy China Stocks

Wednesday, 08 Jun 2011 12:52 AM

 

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Interactive Brokers is banning clients from borrowing money to buy some Chinese stocks, according to the brokerage firm's website.

The ban comes amid a rash of Chinese accounting scandals and inquiries by U.S. regulators that have resulted in auditor resignations, sharp stock declines and some delistings.

Interactive Brokers' ban applies to about 160 Chinese securities and cites "elevated risk concerns" as the reason for the action. The brokerage began enforcing the ban on Monday and will phase it in over the course of this week.

A spokesman for Interactive Brokers declined to comment beyond what was posted on the website.

If a stock bought with a loan suddenly declines, whoever lent the money could have trouble getting it back.

In this case, while the ban on such "margin" purchases of some Chinese stocks could protect against a broader downturn, it could also put selling pressure on the stocks as investors who cannot immediately pay back the loans otherwise sell the stocks to do so.

Based in Greenwich, Connecticut, Interactive Brokers operates in more than 80 markets globally. In April, the brokerage banned borrowing to buy some Chinese reverse merger stocks, which are the Chinese securities that have had the most problems.

It was not immediately known whether any other brokerages were considering similar policies.

© 2014 Thomson/Reuters. All rights reserved.

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