China restricts big share sales as stocks nose dive

Chinese regulators leapt to support stock markets early Tuesday, the day after a major crash, with the central bank pouring cash into the money market system and the securities regulator suggesting it might restrict share sales by major shareholders.

Major shareholders must not sell more than 1 percent of a listed company’s share capital through stock exchanges’ centralised bidding system every three months, the China Securities Regulatory Commission (CSRC) said on its website.

The new measures came before the six-month share reduction ban on large shareholders is set to expire Friday.

The China Securities Regulatory Commission says the newly adopted mechanism, has important effects to stabilize the Chinese stock markets, and played a positive role in protecting investors’ rights.

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

One 23-year-old from Guangzhou who gave his surname as Hu said he had bought stocks on Monday afternoon, assuming that the circuit breaker would never be triggered, only to see it kick in well before the market close, locking in a 5 percent loss.

In China’s volatile market, where a 5% drop or jump isn’t uncommon in a normal trading day, all China’s new 5% pause period has done when the market falls is “create a time when everyone can get their sell orders in” Christopher Balding, a professor of Economics at Peking University, HSBC Business School, told Quartz.

Those who want to reduce their holdings have to publicize such plans 15 trading days beforehand, it said. A further drop to 7 percent on the CSI 300 causes trading to halt on all mainland indexes.

On January 5, the CRSC said it was studying rules to regulate share sales by major shareholders and senior executives at listed companies and pre-announcement rules.

The benchmark Shanghai Composite Index tumbled 7.3 percent to 3,115.89 before trading was halted.