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August 4, 2009

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'Blast-off' IPO trading sparks new concerns

THE skyrocket rides taken recently by Chinese initial public offerings on their trading debuts have sparked calls by investors and analysts to restrict first-day gains to discourage speculation.

The China Securities Regulatory Commission has also taken note of the investor frenzy and is studying whether it should implement additional measures to curb speculative trading, sources close to the regulator told Shanghai Daily yesterday.

China resumed IPOs in late June after a 10-month hiatus and introduced a series of measures aimed at reducing market volatility and protecting the interests of minority investors.

Among the new rules, a company's shares must be halted for 30 minutes on their first day of trading if the price rises or falls more than 20 percent from the opening level. Another 30-minute suspension is enforced when the price fluctuates more than 50 percent in either direction.

But the new mechanism has failed to prevent stocks from soaring. The five companies that went public in China this year jumped an average 112 percent on their first trading day.

In the mainland stock market, there are no limits on price fluctuations on trading debut days, while existing shares are allowed to rise or fall by 10 percent at most on all other days.

In addition, mainland stock investors can't sell shares on the same day they're purchased, which also fueled the sizzling price gains.

"The regulator should consider either imposing trading ranges or allowing people to buy and sell shares of new listings on the debut days to curb overheating," said Wu Ke of Zhongtian Investment Consulting Co.

A public relations official at the CSRC said yesterday he could not comment on the issue, but a Beijing-based broker close to the commission said the regulator believed the first-day gains to be excessive.

"But it doesn't mean any changes will occur soon," the source said. "Officials are still discussing whether they should step in and what measures they might take."

Fueling further concern, China is on track to launch a Nasdaq-like growth enterprise market, featuring start-up high-tech firms, in Shenzhen as early as October. The market will be vulnerable to speculation due to the small size of listings, analysts said.

"Judging from the current situation, it's apparent regulators should do more to deter speculation on the proposed GEM," said Liu Yu, an Orient Securities Co trader.


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