China’s Securities Regulator Reforms Stock Listing System

Thursday’s trading was the shortest duration in China’s capital market history.

Chinese regulators moved to control the damage earlier Thursday, imposing a new limit on the amount of stock that major corporate shareholders can sell.

On Friday, the benchmark Shanghai Composite Index surged by 1.97 percent after the securities authorities suspended the controversial circuit breaker mechanism the night before. With share prices going into free fall nearly as soon as local exchanges opened, market gurus at Huaxi Securities were at a loss to explain why.

The move came after trading on the Shanghai and Shenzhen bourses was halted Thursday morning after shares tumbled 7 percent within the first 30 minutes of trading, triggering the circuit breaker mechanism for the second time this week, after a similar case on Monday, the first day the mechanism took into effect.

In a market with some of the world’s highest volatility, circuit breakers throw up a new wild card that the nation’s 99 million individual investors are still getting used to.

“They are changing the rules all the time now”, Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague with about $206 billion under management.

“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.

The country’s securities regulator said on its microblog big shareholders will be required to sell through private transactions to avoid flooding the market with shares.

Confusion reigns over how policy makers will react to the selloff. Officials unveiled plans to curb share sales by stockholders a day before a ban was due to expire. On Thursday, the 7 percent threshold was reached, halting all trading, less than half an hour in the entire trading day.

Deng Ge said the commission will “appropriately manage” the pace of new share sales, with priorities given to enhancing trading vitality and stabilizing the market. The first pause in trading, once shares fell 5 per cent, lasted the stipulated 15 minutes and was created to calm volatility.