Circuit Breaker Mechanism Halts Trading Twice

Author: Ye Zhen

Share Trade Halts After 7% Plunge

(By Ye Zhen. Shanghai Daily, Jan. 5, 2015, p. A1. Complete text:) China's stocks plunged on the first trading day of 2016, triggering a circuit breaker mechanism that forced markets to close early for the first time.

Dismal factory data and further weakening for the RMB added to economic concerns at the beginning of a week when a ban on share sales by major stakeholders is likely to be lifted.

Trading in stocks, index futures and other equity-linked securities closed at 1:33 p.m. yesterday after the CSI 300 index, which tracks the share prices of the 300 largest companies listed in Shanghai and Shenzhen, fell by 7%. An earlier 15-minute suspension from 1:12 p.m. had failed to stem the decline.

The benchmark Shanghai Composite Index ended down 6.9%, while the Shenzhen Component Index tumbled more than 8%.

"We have not seen such volatility on the first trading day for the past 11 years," said Hong Hao, chief strategist at Bocom International. "The trading halt obviously has worked against regulators' will."

The circuit breaker mechanism that came into effect yesterday is part of the securities regulator's effort to stabilize markets by providing a cooling-off period for investors during periods of drastic market fluctuations.

Under the rules, a move of 5% in the CSI 300 triggers a 15-minute trading halt, while a move of 7% halts trading for the rest of the day.

"The plan was to suppress market volatility, but it has magnified volatility as investors were concerned that such significant selling pressure would beget more selling," Hong said.

Guo Feng, an analyst with Northeast Securities, said there were worries about what would happen later this week when the ban on share sales by major stakeholders ended.

"The market was dragged down by worries ...

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