China’s newly launched securities lending programme, enabling fund managers to be more efficient when it comes to short-selling, has received a lukewarm response on its first two days.

Under the scheme, which started on February 28, 11 brokerages qualify to borrow stocks from institutional investors and lend them to clients, notes the China Securities Finance Corporation (CSFC), a state-owned agency that acts as intermediary between borrowers and lenders.

Yet the programme saw just 45 transactions on its first day with an average duration of 28 days, comprising 712,000 shares of 30 listed firms and amounting to Rmb8.8 million ($1.4 million). Among them, four companies accounted for 35% of borrowed stock: Bank of China, China Merchants, GF Securities and Vanke, according to CSFC.

On March 1, trading value more than doubled to Rmb20.7 million, but that is set against total market turnover for both Shanghai and Shenzhen stock exchanges of more than Rmb200 billion.

Such low sec-lending volumes are chiefly because most mandates for mutual funds and sunshine funds don’t allow their managers to short sell; most participants are institutional investors at present, notes Zeng Jun, CEO of Golden Investment Management, a Shenzhen-based sunshine fund.

But from an investment perspective, he sees the sec-lending programme as an important step, enabling fund managers to sell over-valued stocks short and helping to make market valuations more reasonable.

Previously, brokerages could only lend stocks to their clients, therein limiting the volume and types of stocks available for short-selling.

The sec-lending programme raises both the number and type of securities allowed, lowering lending costs and increasing sources for sec-lending; this should help China’s short-selling market to develop, says analyst Peng Xiaowu of simuwang.com, a website covering private funds.

There are 90 stocks that investors can now choose from under the programme, 40 listed on the Shenzhen exchange and 50 in Shanghai. Most are classified as blue chips. The total market cap of these stocks is Rmb9.3 trillion, about 50% of China’s A-share market.

Brokerages can borrow stocks from the CSFC ranging from three to 182 days, while lending costs typically range from 3.5-4%.