On Thursday, it took an hour for the securities regulator to unveil a highly anticipated rule to limit big shareholders from selling their stocks after the market was suspended for the day.
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Some analysts said the rules were less draconian than expected, as the restrictions do not apply to shares acquired in the secondary market, or share sales outside the exchanges’ bidding system, such as block trades, or negotiated transfers. True, the yuan is weakening and the economy is decelerating to its slowest annual pace since 1990, but that been has known for some time.
“The circuit breaker is a magnifier, but not trigger, of market volatility”. “Investors need time to adapt to the new rules”. That halts trading for 15 minutes, with exchanges shutting for the rest of the day if the index moves by 7%, as it did on Monday and on Thursday.
“It is clearly adding some unintended consequences, such as people trying to sell before the break, which is actually accelerating the decline”, said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co.in Shanghai. “This type of development in a retail- driven market is bound to be challenging”.
The China Securities Regulatory Commission capped the size of stakes that major investors are allowed to sell at 1 per cent of a company’s shares for three months effective January 9, the regulator said in a statement on Thursday (Jan 7).
On the currency front, policy makers have pledged to keep the yuan stable, drawing down a record $108 billion from foreign reserves last month to prop it up.
China plans to restrict stock sales by large shareholders once a ban imposed in July to stop a slide in prices is lifted this week.
Some investors had no choice but to sell on Thursday.
China’s equity markets were also suspended on Monday, after plunging by their daily 7 percent threshold, with stock transactions halted for the day.
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Regulators abandoned the circuit breaker because “it wasn’t working very well or wasn’t doing the job it was supposed to”, Geoffrey Dennis, head of global emerging-market strategy at UBS Securities, said by phone from Boston. “But it will not reverse the decline”, said Hong Hao, chief strategist at investment bank BOCOM International.
