China announces plan to limit large share sales

The circuit breaker kicks in when the CSI 300 – an index that comprises the biggest stocks on the Shanghai and Shenzhen Composites – declines 5 percent, triggering a 15-minute trading halt.

On Tuesday, the People’s Bank of China injected a generous slug of liquidity into domestic markets to keep borrowing costs down. The market rout alienated small investors who were left holding shares worth less than they paid.

As of Tuesday afternoon, at least five listed companies have promised that their controlling shareholders and senior executives will not reduce their equity holdings.

Chinese leaders had encouraged the public to buy in hopes of raising money to overhaul state industry.

The CSRC also said it would further improve the circuit breaker mechanism after some analysts blamed the tool for inadvertently fuelling the sell-off.

Regulators are winding down emergency measures imposed after China’s main market index plunged more than 30 per cent in June.

Repeated and often heavy handed interventions by Beijing have kept stock valuations at what many consider excessively high given the slowing economy and falling corporate profits.

“It (Other OTC: ITGL – news) ‘s like the sword of the Damocles overshadowing the market”, Shen Weizheng, fund manager at Shanghai-based Ivy Capital said, adding the real worry is that the Chinese economy will remain weak.

Market reforms put on hold by the crash could be delayed further if the circuit breaker fails to calm markets – which had rebounded over 25% from August lows prior to Monday.

Many traders largely attributed Monday’s sell-off to fears that the expiry of the share-sale ban could see an estimated 1.24 trillion yuan ($190.23 billion) of shares dumped onto the market.

It was the first time China used the “circuit breaker” mechanism it announced late a year ago.