(Yicai) April 11 -- A number of Chinese brokerages have temporarily halted their securities lending business, which is when brokers lend stocks that they own or stocks in their clients' investment accounts to short sellers for a fee, National Business Daily reported today.

A leading broker based in East China froze its securities lending pool today, only allowing the return of securities lent and banning any further borrowing, the report said. The firm has not said when the pool will re-open.

But in North China, brokers have not said they will stop securities lending, according to an investment firm. The business is a good earner for brokers as investors borrow securities for a period to sell and are required to return the same type and amount of securities by a certain deadline and pay interest.

The country’s securities watchdog started to crack down on securities lending earlier this year, banning the increase in the size of the lending pool and barring illicit behaviors such as arbitrage. The move is seen as one of the main reasons for the recent stock market slump.

There was CNY43 billion (USD5.9 billion) of outstanding securities lending on the Chinese stock markets as of the close of markets yesterday, according to East Money Information's financial terminal Choice. This is a contraction of 40 percent from the start of the year.

The Shanghai Composite Index closed up 0.2 percent at 3,034.25 today, the Shenzhen Component Index finished the day up 0.08 percent at 1,721.59 while the ChiNext Index ended the day down 0.4 percent at 1,782.09.

Editor: Kim Taylor