China stocks advance as regulator seeks to reassure investors

The system works by automatically halting trading for fifteen minutes when the CSI300, which is composed of large stocks in Shanghai and Shenzhen, drop by more than 5%, while a drop of 7% of more automatically triggers a shutdown on all mainland Chinese indexes.

The “circuit breaker” requires a 15-minute pause in trading if the CSI 300 falls 5 percent within 30 minutes. When the market resumed, investors rushed to sell, sending the index lower and quickly hitting the 7%-decline circuit breaker, which shuts the market down for the rest of the day. Financial analysts have warned that would lead to a new round of selling and more volatility.

With no precedent, the market has taken time to adapt.

Chinese markets have lurched up and down as regulators gradually withdraw emergency measures imposed after the main stock index plunged in June following an explosive rise. “Next, the CSRC will carefully sum up the experience and lessons, organize research on improving the mechanism and seek extensive public opinions”, Deng said. The index dived a further 2 percent in just 2 minutes after reopening at 9:57 a.m., and trading was ceased.

The China Securities Regulatory Commission said that it would consider restricting the proportion of shares that major shareholders could sell during a given period of time.

The new rules aim to prevent possible share-selling waves and help to stabilize the market. The planned stock sales must be filed 15 trading days in advance. The one positive, the halts took effect without any major technical problems.

But China’s central bank injected a massive US$20 billion ($28.5 billion) in cash through open market operations on Tuesday morning, and forex traders said it also intervened to stabilise the sliding yuan, which some blamed for aggravating Monday’s slump.