Online Brokerages Raised Margin Requirements On Some Chinese Stocks
June 09 2011 - 4:28PM
Dow Jones News
Four major online brokerages, including Charles Schwab Corp.
(SCHW) and Fidelity Investments, have recently raised margin
requirements on some Chinese securities, as concerns mount over
accounting discrepancies at some companies trading in the U.S.
Schwab, the largest discount brokerage by market capitalization,
said in an emailed statement it "adjusted maintenance requirements
for many, and made some unmarginable based on current
information."
Buying stocks on margin refers to purchasing the securities with
money borrowed from the brokerage. Buying on margin can increase
gains and losses on stocks; higher margin requirements can cut into
demand for volatile shares.
TD Ameritrade Holding Corp. (AMTD) also raised its margin
requirements for some Chinese stocks, while E*Trade Financial Corp.
(ETFC) initiated a similar change in March. E*Trade currently has
127 stocks that have margin requirements of 100%, according to a
company spokeswoman, who wouldn't say how many of those were
Chinese companies. Fidelity said it "adjusted" margin requirements
on some Chinese stocks "weeks ago."
The brokerages say such a move isn't unusual as they look to
protect their clients and themselves from volatility, and what one
spokesman termed "suspicious" activity.
Recently, some Chinese companies traded in the U.S. have fallen
sharply in price. Some have in recent months acknowledged problems
with their accounting. The Securities and Exchange Commission is
investigating accounting and disclosure issues at some Chinese
companies that list on U.S. exchanges through "reverse mergers,"
arrangements that can avoid the regulatory scrutiny that comes with
an initial public offering. In a reverse merger, a company acquires
a public stock listing by merging with a shell company with
publicly traded shares.
The Schwab spokesman said the company will "continue to monitor
the situation to determine if we need to make further changes."
Recently, Interactive Brokers Group Inc. (IBKR) announced on its
website that it barred clients from using borrowed money to buy
shares of over 130 Chinese companies because of "elevated risk
concerns."
-By Brett Philbin, Dow Jones Newswires; 212-416-2173;
brett.philbin@dowjones.com
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