China intervenes in stock market after $590-billion rout

The China Securities Regulatory Commission also defended the functioning of the new “circuit breaker” policy that caused Chinese stock markets to suspend trade on Monday after markets fell 7 percent, triggering the mechanism on the very first day it came into effect.

Chinese policymakers, who took unprecedented measures to prop up stocks during a summer crash, are stepping in once again to combat a rout that erased US$590bil of value in the worst-ever start to a year for the nation’s equity market.

The CSI 300 rose 0.7% at 1:07 pm local time. Listed companies were encouraged to issue statements saying they were willing to halt such sales, they said.

The regulator’s ban on major shareholders from selling their stock holding will expire on Friday, which has been seen as one of the triggers of Monday’s sell-off.

“The circuit breaker is an entirely new mechanism and there’s no experience (with such things) in China”. The CSRC also said that the system will undergo constant improvements.

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.

While the CSRC reiterated that circuit breakers play an important role in stabilising the market, Citigroup, Deutsche Bank and Nomura Holdings said the rules failed to restore calm as investors scrambled to exit positions before getting locked in by the halts.

It could also further dent confidence in the China Securities Regulatory Commission and in the wider financial regulatory framework to manage increasingly complex markets even as China’s economy struggles against major headwinds.

The new mechanism adds to trading restrictions that include a 10 percent limit on daily swings for individual stocks and a so-called “T+1 rule” preventing investors from buying and selling the same shares in a single day.

While this is the first time the new system has been used in live trading, it was designed in September 2015 after a period of extreme volatility saw investors engage in a panic sell-off.