THE securities regulator was preparing to allow margin trading and short selling, Shang Fulin, chairman of the China Securities Regulatory Commission, said Friday.

“Right now, we are preparing for margin trading,’’ Shang told a conference in Shanghai.

China, the world’s fastest-growing major economy, wants to introduce more financial tools to allow investors to earn higher profits and hedge against market risks.

The CSI 300 Index has declined 28 percent this year after more than doubling last year when it was the world’s best-performing equity benchmark.

The government flagged rules in 2006 allowing individual and institutional investors to make margin trades and short-sell an unlimited amount of stocks. It was intended that brokerages with three years trading history and net assets of no less than 1.2 billion yuan (US$171.43 million) would be allowed to handle margin trades.

Investors can borrow money to buy stocks in margin trading if they expect share prices will rise. They can also short-sell individual stocks by borrowing them from brokerages.

In short selling, investors sell stocks they don’t own in the hope they will fall and they can buy them back cheaper to make a profit.

Regulators would review asset-backed securities, Shang said. (SD-Agencies)