SHANGHAI: China will temporarily halt stock trading if the market moves five percent or more under a new system to take effect on January 1, the country’s two exchanges said Friday, as authorities seek to curb volatility.
Plans for the mechanism — dubbed a “circuit breaker” — were first publicly revealed in September in the wake of a rout that wiped trillions of dollars off China’s markets.
The Shanghai and Shenzhen markets will halt trading for 15 minutes if the CSI 300 index of 300 major listed companies rises or falls five percent, the exchanges said in separate statements.
The rule cuts in half the originally proposed 30 minutes previously given in a draft plan that was open for public comment.
If the index — which includes companies such as banking giant ICBC and energy majors PetroChina and Sinopec — gains or loses seven percent, trading will be suspended for the rest of the day to avoid “extreme systemic risks”, the Shanghai exchange said.
The market regulator said the move aimed to maintain order.
“It will help stabilise the market, maintain market order, protect investors’ interests and promote the long-term and healthy development of the capital market,” the China Securities Regulatory Commission said in a statement.
The Shanghai index surged 150 percent over 12 months to mid-June before collapsing nearly 30 percent in just three weeks, prompting officials to launch an extraordinary rescue package that included funding a state-backed company to buy stocks on behalf of the government.
“The introduction of a ‘circuit breaker’ can reduce extreme sentiment and make the market more rational by giving investors time to calm down,” Chen Jiahe, an analyst at Cinda Securities, told AFP.
China’s current rules already halt trading of individual shares if they move up or down 10 percent.
The Shanghai market closed down 1.67 percent on Friday but has risen over 20 percent from its recent low in August.