China announces mechanism to temporarily halt stock trading in response to price swings

BEIJING, China – Chinese regulators announced a mechanism Friday to temporarily suspend stock trading in the event of wide price swings in the latest attempt to enforce stability in volatile markets.

Trading will be halted for 15 minutes if a broad market index, the CSI 300, rises or falls by 5 per cent, the China Securities Regulatory Commission announced. The measure takes effect Jan. 1.

Authorities are trying to restore confidence in Chinese stocks after a plunge in prices in June prompted a panicked, multibillion-dollar government intervention.

Beijing is gradually unwinding emergency controls that included a freeze on new stock offerings to stop the market plunge.

The mechanism for temporary trading suspensions is intended to “safeguard market order, protect investor rights and promote orderly and healthy market development,” said a statement on the websites of the stock exchanges in Shanghai and the southern city of Shenzhen.

Such “circuit breakers” are relatively common in Asian stock markets. In Thailand, trading is suspended for 30 minutes if the main market index falls 10 per cent from the previous day’s close.

The Chinese measure also calls for trading to be suspended until the following day if, even after temporary halts, the total daily change in the CSI 300 exceeds 7 per cent.

The CSI 300 is made up of the 300 largest-capitalization stocks on China’s exchanges in Shanghai and the southern city of Shenzhen. It has risen or fallen by at least 5 per cent on six trading days this year, most recently on Aug. 24, when it fell 7.8 per cent.

Before the June slump, the benchmark Shanghai Composite Index soared more than 150 per cent starting late last year after state media said shares were inexpensive. That led investors to believe Beijing would prop up prices if needed.

The bubble burst after an unrelated change in banking rules in early June made investors think Beijing’s support might be weakening.

The Shanghai index fell 30 per cent in a few weeks but rebounded following Beijing’s intervention. It has risen 20 per cent from its low in early August.

A group of state entities bought shares to prop up prices. Goldman Sachs estimated in a report in August the group spent 860 billion-900 billion yuan ($135 billion-$140 billion) in June and July.

The July moratorium on new stock sales led to cancellation of 28 planned initial public offerings. Regulators announced Nov. 6 those would resume and said additional sales would be allowed later.