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from Zero Hedge
While everyone knows the direct consequence of China’s tinkering with collateral rules last night led to the biggest Chinese stock market crash in years, not many understand what caused this. In a nutshell, what China did was severely curb its shadow banking industry, when China’s securities clearing house said it raised the quality threshold for corporate bonds qualifying as collateral for repurchase agreements, or repos, which are short-term loans with maturities spanning from overnight to 182 days. And since the proceeds of such repo deals are usually used to purchase stocks, suddenly a major source of “dry powder” for Chinese stock buying was violently and unexpectedly yanked away.
Continue Reading at ZeroHedge.com…