Shares bought from the secondary market are not subject to the regulation. But by flip-flopping on the rule in such a short span, they only added to the sentiment among investors across the world that they’re improvising – and to ill effect – as they try to stabilize markets and shore up a faltering economy.
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The securities authorities’ decision on Thursday night to put the “circuit breaker” mechanism on hold-only four days after it was introduced-is commendable.
The mechanism, which was implemented at the beginning of the year, has been triggered twice this week.
Policy makers went to extreme lengths to support shares in the midst of the rout last summer, including ordering stock purchases by state funds, suspending initial public offerings and allowing trading halts that froze hundreds of mainland-listed shares.
China suspended stock trading for the second time in a week on Thursday, after the CSI 300 market index plummeted seven per cent a half hour after markets opened.
“They are changing the rules all the time now”, said Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague.
Level 1 shuts down trading for 15 minutes if the index drops seven per cent; level 2 shuts down trading for 15 minutes if it drops by 13 per cent; and level 3 shuts down the entire trading day if the index falls by 20 per cent.
Without them, D’Cruz said, “a panic sell-off could take place”, which could amplify the problem.
On the Paris stock exchange trading in a share quoted on the main CAC 40 index is suspended if it climbs or falls more than 10 percent during the session.
“We have an array of protective measures that have been elaborated with regulators based upon experience”, said Fabrice Peresse, who heads of monitoring of trading at Euronext, the operator of the Paris, Brussels, Amsterdam and Lisbon stock exchanges.
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“Information is key”, said Pinatton, because “the fundamental objective of a suspension is to protect savers”.
