June 1, 2018 / 3:58 AM / a year ago

UPDATE 1-China's securities association cracks down on OTC equity pledge trading - sources

* Brokers must not provide finance using OTC stock as collateral

* Exceptions include existing OTC equity pledge repurchase operations

* SAC did not respond to requests for comment (Adds request for comment)

SHANGHAI, June 1 (Reuters) - China's securities association has asked brokerages not to provide finance based on over-the-counter (OTC) stock pledges, according to two people with direct knowledge of the matter.

The move is the latest in a series of measures taken by Beijing to reduce risk in the country's financial system.

Stock-backed lending is seen as risky, as the lender can ask the borrower to put up more collateral or face having the loan recalled if shares fall below a certain redline.

The Securities Association of China (SAC) said in a notice dated May 30 that brokerages, their subsidiaries and any asset plans they are managing must not provide finance using OTC stock as collateral.

The SAC did not respond to requests for comment.

Exceptions to the rule include any existing OTC equity pledge repurchase operations, said the SAC which is an association supervised by the China Securities Regulatory Commission.

The SAC prohibits brokerages from providing third-party intermediary services such as market making and other services for banks and trust companies to pledge listed-company shares.

Reporting by Li Zheng and Engen Tham; Writing by Samuel Shen; Editing by Kim Coghill and Jacqueline Wong

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