China abandons circuit breaker to maintain market stability

After a turbulent start of the year for the Chinese stock markets, as the newly implemented circuit breaker mechanism was activated twice, the Chinese regulators have decided to suspend the solution, in order to keep the markets stable.

According to a Xinhua report, referring to a statement from the China Securities Regulatory Commission (CSRC), the mechanism is suspended from Friday, January 8th.

CSRC spokesperson Deng Ke said,

“Currently, the negative effects of the mechanism are greater than the positive effects. Thus, the China Securities Regulatory Commission (CSRC) had decided to suspend the circuit breaker mechanism to maintain market stability”.

He added that the mechanism “is not the major reason for the market plunge, but it failed to achieve the anticipated effects”.

The circuit breaker was introduced to tame vast fluctuations of the Chinese stock market, forcing trading to be halted for 15 minutes if the Hushen 300 Index moves up or down by 5% before 2:45 p.m. If the movement reaches 7% when trading is resumed, the market closes for the day.

The circuit breaker was activated on Monday (January 4th) and Thursday(January 7th), as decreases in the Hushen 300 Index reached 7%.

Next, the CSRC will review the situation and will seek to improve the circuit breaker mechanism.

On Thursday, the CSRC published a set of new rules to limit big shareholders from selling their stocks.

Under the new regulations, big shareholders, the management and those who hold more than 5% of a company’s shares will not be allowed to sell more than 1% of the company’s shares within any three-month period. Those willing to cut their holdings have to announce their plans 15 trading days beforehand. The new rules take effect on January 9, 2016.

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