China announces plan to limit large share sales

Chinese shares closed mixed in volatile trading Tuesday morning, following Monday’s 7 percent fall that led to trading being suspended under the Chinese market’s new circuit-breaker mechanism.

Trading was halted on Monday after the gauge dropped 7 per cent.

China’s stocks rose, reversing an early loss, as the regulator moved to reassure investors after Monday’s plunge put the nation’s new market circuit breakers to the test on their first day.

The CSI300 index was up 0.8 per cent at 3,496.50 points by midday, while the Shanghai Composite Index gained 0.4 per cent to 3,309.92.

Before the market opening, Deng Ge, the spokesman of the China Securities Regulatory Commission, said in a statement that the regulator will continue to improve the system based on real market operation.

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

A lockup on an estimated 1.2 trillion worth of shares held by major institutions, imposed as a stability measure during last summer’s market crash, is set to expire next Monday.

“Clearly, the tight stops of 5 per cent and per cent of China’s circuit breaker have a “Magnet Effect” as prices gravitate towards the breaker, and prompt a stampede that drains market liquidity”, Hao Hong, the chief China strategist at Bocom International, wrote in a report.

However, long-term success is far from assured, analysts and investors warned. “The market drop is overdue”.

‘The CSRC is studying issuing pre-announcement rules for the major sales of shares during the pre-opening sessions by the above group and restricting the proportion of shares that they could sell during a given period of time ‘ it said. “And to retail investors without much experience of the market it sounds scary, and could also add to their sense of panic”.

The market benchmark more than doubled between late 2014 and its June 12 peak as millions of novice investors bought shares.