Shanghai Gold Exchange pushes more Chinese banks to end retail leverage trading

Twelve major Chinese banks plan to cease retail leveraged precious-metal trading, a practice that allows everyday investors to speculate on gold and silver contracts without owning the physical metal. This shift is driven by sharp fluctuations in international gold prices and a desire to reduce risk for retail clients. The Shanghai Gold Exchange, China's main platform for physical precious-metal trading, has mandated the withdrawal of retail leveraged trading.

The latest move came from China Everbright Bank, which announced it would phase out the business after October 19, while Shanghai Pudong Development Bank made a similar announcement. In total, ICBC, Bank of China, and China Construction Bank are among the 12 lenders planning to exit the business. Analysts say that leveraged trading demands high expertise and judgment from investors, making it unsuitable for domestic retail clients with limited trading knowledge and risk-averse profiles.

Banks have been gradually raising retail-margin requirements since last year, reaching 100 per cent by the end of the first quarter of this year. The incident from 2020, where a historic collapse in US crude oil prices led to significant losses for retail investors, contributed to the shift in the lending industry. Following this high-profile event, financial regulators began considering a broader phase-out of retail commodity-linked trading products.

A source at BOC's Shanghai branch, involved in handling the fallout from the Yuanyoubao incident, stated that the shift was expected. The source explained that the incident, which prompted sweeping regulatory caution towards retail leverage instruments, resulted in many lenders suspending new accounts for retail leveraged precious-metal trading.

Going forward, mainland lenders are expected to offer only physical gold and non-leveraged gold-accumulation plans for retail investment purposes.