China suspends stock market 'circuit breaker'
| Friday, January 8, 2016 - 09:00
Beijing: China has announced that it will from Friday suspend the stock market "circuit breaker" mechanism that has been implemented since the beginning of this year.
"Currently, the negative effects of the mechanism are greater than the positive effects. Thus, the China Securities Regulatory Commission (CSRC) has decided to suspend the circuit breaker mechanism to maintain market stability," CSRC spokesperson Deng Ke said in a statement late on Thursday.
Under the mechanism that became effective on January 1 to tame the wildly-fluctuating Chinese stock market, trading will be halted for 15 minutes if the Hushen 300 Index, which reflects the performance of bluechips listed in Shanghai and Shenzhen, moves up or down by 5 percent before 2:45 p.m.
If the movement reaches seven percent when trading is resumed, the market closes for the day, Xinhua news agency reported.
The circuit breaker was triggered on both Monday and Thursday, as plunges in the Hushen 300 Index reached seven percent on both trading days.
"The mechanism was introduced with the aim of providing a calm-down period for the market to avoid or reduce hasty trading decisions in the case of sharp fluctuations, protecting the interests of investors," Deng said.
He said the mechanism "is not the major reason for the market plunge, but it failed to achieve the anticipated effects", adding that the mechanism in effect accelerated the plunge as some investors decided to sell when the index's drop neared five percent or seven percent.
The CSRC decided to introduce the circuit breaker system and conducted a public consultation on the plan for its introduction in September 2015 to prevent further abnormal fluctuations.
Trading on the Shanghai and Shenzhen bourses stopped early on Thursday after shares tumbled seven percent within the first 30 minutes of trading, triggering the circuit breaker mechanism. It was the shortest trading time in the history of China's stock market.
At 9.42 a.m., trading was suspended for 15 minutes after the Hushen 300 dropped by over five percent. The index dived a further two percent in just two minutes after reopening at 9:57 a.m., and trading was ceased.
Following the trading suspension Thursday, the CSRC unveiled new rules to limit big shareholders from selling their stocks.
Big shareholders, the management and those who hold more than five percent of a company's shares were asked not to sell more than one percent of the company's shares within any three-month period, a notice said.
Those who want to reduce their holdings will have to publicise their plans 15 trading days beforehand. The new rule will take effect on January 9.