“Hoping to avoid another big sell-off and triggering of the market’s circuit breakers the CSRC said on its official website that it is studying rules ‘to regulate share sales by major shareholders and senior executives in listed companies”.
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Deng Ge, the CSRC spokesman, said on Tuesday that the new regulation of share sales by major shareholders will include a predisclosure system, selling restrictions and mechanisms such as block trading and private negotiations to reduce the negative impact on the capital market.
This triggered an automatic “circuit breaker” mechanism, where trading was halted in a bid to dampen volatility.
This would indirectly address concerns that the end of a 6-month lockup on share sales by major institutional investors – scheduled to free up an estimated 1.2 trillion yuan worth of shares for sale next Monday – would result in a massive institutional evacuation from stocks.
“The circuit breaker is an entirely new mechanism and there’s no experience (with such things) in China”.
The regulator did say, however, that the circuit breaker needed improvement.
Monday’s plunge threatened Beijing’s six-month campaign to restore confidence in stock markets since the summer crash, which saw indexes lose as much as 40% in a few weeks.
However, long-term success is far from assured, analysts and investors warned. “The market drop is overdue”.
“There is a strong motivation to sell the expensive small-cap stocks as the average price-to-earning ratio of companies listed on the startup board has reached 109 times”, he said.
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It could also further dent confidence in the China Securities Regulatory Commission and in the wider financial regulatory framework to manage increasingly complex markets even as China’s economy struggles against major headwinds.
