China asks brokerages to curb leveraged stock trades
China’s securities watchdog is asking brokerages to restrict leverage available to hedge funds that borrow large sums of money via a complex derivative business to trade stocks, three sources told Reuters.
Hedge funds using the so-called DMA-Swap strategy were told by their brokers late on Wednesday to start limiting leveraged bets, two sources who received notices from regulators said.
Through the DMA-Swap, hedge funds can borrow up to $4 against every $1 they deposit with the broker in the margin account, while also skirting regulatory borrowing limits by having such trades sit on brokers’ books.