China’s securities regulator has ordered brokerages to stop offering financing to investors through total return swaps and other over-the-counter derivatives, the latest move to wind down margin financing in the country’s stock markets.
Total return swaps are a previously little-regulated business at Chinese brokerages, which easily enable investors to obtain margin financing to invest in listed and over-the-counter stocks.
Margin financing was a major factor in the year-long stock market rally that turned to a rout over the summer, wiping trillions of dollars of the year’s gains. The Shanghai Composite Index is now up more than 20% from its August lows.
“Some brokerages have...
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