China to briefly stop volatile stock trading
Print Edition
CHINA will temporarily stop share trading if a broad market index rises or falls 5 percent or more under a circuit breaker mechanism that will start on January 1 to curb wild market fluctuations, authorities said yesterday.
From January 1, trading of all stocks, convertible corporate bonds, index futures and other equity-related securities will be suspended for 15 minutes when the CSI 300 index rises or falls by more than 5 percent from the previous day’s close, the Shanghai and Shenzhen stock exchanges and the China Financial Futures Exchange said in a joint statement after the market closed yesterday.
The duration of the trading suspension is cut from a previous proposal of 30 minutes to minimize the effect on market liquidity, they said.
A 7 percent movement in the index, which tracks the stock prices of the 300 largest companies listed in Shanghai and Shenzhen, will trigger a trading halt for the rest of the day, the statement said.
“Dominated by retail investors, China’s stock market is volatile. The circuit breaker system will help stabilize markets by providing a cooling-off period for investors during drastic market fluctuations,” Deng Ge, a spokesman with the China Securities Regulatory Commission, said yesterday.
The circuit breaker proposal was first unveiled in September in the wake of a stock market rout in China in the summer.
Before the rout, the Shanghai Composite Index soared over 150 percent starting late last year.
The bubble burst in June. The Shanghai index fell 30 percent in a few weeks as investors using borrowed money to trade shares exited amid concerns about over-valuation and slowing economic growth.
But the market rebounded following the government’s intervention. It has risen 20 percent from its low in early August.
The authorities are gradually unwinding emergency controls that included a freeze on new stock offerings to stop the market plunge.
Such “circuit breakers” are common in Asian stock markets. In Thailand, trading is suspended for 30 minutes if the main market index falls 10 percent from the previous day’s close.
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