China eyes stock-lending body to aid short-selling - report

HONG KONG Jan 5 (Reuters) - China plans to introduce a Centralised Securities Lending Exchange to facilitate short-selling, the Financial Times reported on Thursday, a move that would deepen its capital markets and develop the country's nascent hedge fund industry.

The exchange will source shares from institutions such as banks, insurers and fund firms in China and make them available to fund managers who wish to borrow them for a fee, the report said, citing unnamed securities officials and fund managers.

Short-sellers make money by borrowing stocks and selling them in the hope that the price declines, allowing them to buy the shares at a lower price and pocket the difference.

China's hedge fund industry came into being in 2010 when the government allowed index futures, short-selling and margin-trading, making it possible to offer such products.

Beijing recently formalised its limited margin-trading and short-selling programme, which started out in 2010 as a pilot scheme, and allowed more institutions to participate.

China still bans naked short-selling, meaning such deals must be based on collateral using stocks or other securities.

The government is keen to develop the market as part of efforts to cultivate its capital markets, but is also seeking to mitigate risks from such business, in particular as the stock market fell about 22 percent last year. (Reporting by Nishant Kumar; Editing by Jason Subler and Chris Lewis)