China extends share sale restrictions as market plunges

The emergency measures, which took effect January 1, also kicked in on Monday to halt stock trading.

Unlike the trading-curb system in-place on the markets in NY, which slows down the flow of trades during high-volume sell-offs, the Chinese circuit-breaker shuts down trading completely.

As the stock market continued to nosedive, China’s securities regulator unveiled new rules Thursday to limit big shareholders from selling their stocks.

Hong Hao, chief China strategist at Bank of Communications in Hong Kong, said the new restrictions alone would be “useless to stem the market plunge” as the newly-minted circuit-breaker mechanism could easily pose threats to market liquidity and investor sentiment. However, some observers felt the system could have increased investor jitters about the health of markets. “Retail investors can exit their positions first”, said one Beijing-based fund manager at Citic Securities. If they want to reduce their shares, they are more likely to use other methods such as through transfer. The smaller Shenzhen Composite Index slumped 8.3 percent to 1,955.88. Yet the two indexes gradualy pulled back to above the opening after 20 minutes of trading.

Regulators announced in December that they would introduce the circuit breakers, which are aimed at preventing huge price swings.

The nation’s CSI 300 Index plunged 7.2 percent on Thursday, triggering an automatic shutdown within 30 minutes of the open, as declines in the yuan rattled investor confidence in the world’s second-largest economy. If the 5% up or down happens after 14:45 or the 7% threshold is triggered at any moment, the trading will be halted until the end of the session.