China January 1, launched the mechanism of automatic suspension of trading on the major stock exchanges of the country with a sudden change of quotations of securities. The negative effect of mechanism exceeded the positive.
BEIJING, 7 Jan. Zhanna Manukyan. The Commission on regulation of securities of China (CSRC) late on Thursday announced that beginning Friday will stop the automatic suspension of trading on the stock exchanges of the country with sharp variations after Thursday trading was halted for the day because of the collapse of the main quotes of the Shanghai and Shenzhen stock exchanges more than on 7%, Xinhua news Agency reported.
“Now the negative effect of the mechanism more than positive. In this regard, the Commission on regulation of securities of China decided to suspend the operation of the automatic stop mechanism of bidding to maintain the stability of the stock market”, — quotes Agency the statement of the official representative of the Commission Dan CE.
Dan Ke said that the new mechanism “is not the primary cause of the collapse of the stock market, but he did not give the desired effect,” adding that the mechanism has reinforced the market decline because investors decided to sell shares when the main index fell by 5%. He stressed that “the Commission will learn the lessons and improve the mechanism”.
China January 1, launched the mechanism of automatic suspension of trading on the major stock exchanges of the country with a sudden change of quotations of securities. The mechanism operates on the Shanghai and Shenzhen stock exchanges and financial futures exchange China (China Financial Futures Exchange, CFFEX). The mechanism is triggered the sudden change in securities prices 5%, stop trading will continue for 15 minutes. If the quotes then change to 5% after 14.45 local time, or if the index rises or falls by 7%, the auction ends before the closing of the exchanges.
On Thursday at 9.42 Beijing time trading on the stock exchanges were suspended for 15 minutes after the CSI 300 index, which reflects the value of the shares of the 300 largest companies on the Shanghai and Shenzhen stock exchanges, has fallen by more than 5%. Two minutes after the resumption of trading in 9.57 index fell another 2% after which the auction was terminated prior to the end of the day.
Thus the auction on Thursday became the shortest in the history of the stock market of China. The key index of Shanghai stock exchange Shanghai Composite Index lost 7,32%, falling to 3115,89 points, Shenzhen Shenzhen Component tumbled to 8.35% to 10745,45 item. The stock market crash followed after the people’s Bank of China (Central Bank) on Thursday drastically lowered the exchange rate of the yuan to the dollar by 0.51% to 6,5646, which was the lowest value since August of last year.
For the first time the mechanism of suspension of trading worked on 4 January, when major indexes also tumbled 7%. Experts believe that the new mechanism reduces the liquidity of the market, causing the panic of investors.
“Automatic stop of the auction is intended to reassure investors, but not to control the fluctuations of the indices. However, this mechanism sacrifices the liquidity of the capital market in favor of stable of stock prices, which increases the panic in the market”, — the analyst of institute of Securities Tencent Hu Shaohua, the opinion cited by the Xinhua news Agency.
With him also agrees and Phillip Securities analyst Chen Senyuu, which notes that the panic of investors was a reaction to the inclusion of a mechanism on Monday.
“The suspension of trading has reduced market liquidity, and investors are afraid that they will not be able to sell. Initially, the pressure was not so strong. China should not use the tool formed market, given that its main investors — individuals who easily succumb to panic,” — said the expert whose opinion leads the Agency France Presse.