China to change trading rules

By Zhao Yidi SHANGHAI, Bloomberg

China plans to alter the rules for halting stock transactions on the Shanghai and Shenzhen exchanges, introduce circuit breakers to reduce volatility and preserve investors’ confidence in Asia’s third-largest capital market. Stocks with gyrating prices or unusual volumes can be halted from trading, the two bourses said Wednesday without specifying the extent of the volatility. Inactive stocks may be expelled while companies that are traded on more than one exchange must halt their stocks on every exchange, according to the statement. China’s key stock index rose 1.2 percent to a record on Feb. 26, only to fall 9.2 percent a day later in its biggest daily slump in a decade, a boom-and-bust cycle that underscores the challenge facing securities regulator Shang Fulin. Shang is trying to enhance trading in China’s US$1.3 trillion capital market to prevent volatility from spilling over to other equity markets. “China’s stock market is still young, listed companies need better corporate governance and the regulator needs to adjust rules as the market becomes more mature,” said Zhang Qi, analyst at Haitong Securities Co. in Shanghai. “It’s necessary for the exchanges to change the trading rules as more and more companies have become dual-listed.”

China’s key Shanghai and Shenzhen 300 Index advanced to a record close for the fifth day Wednesday. The index has more than doubled in the past 12 months and has risen 37 percent this year, outpacing the annual returns on five-year bank deposits at 4.41 percent. That’s attracted Chinese households to spend a larger proportion of their 16.2 trillion yuan (US$2.1 trillion) of savings buying stocks and mutual funds. About 30.3 percent of 20,000 households surveyed in 50 major cities during the first quarter said it’s worth investing money in the equity market, according to a report Wednesday by the People’s Bank of China. That’s a jump of 11.7 percentage points from the fourth quarter of 2006, the central bank said. To enhance trading in the stock market, the Shanghai and Shenzhen exchanges have circulated their proposed rules to more than 1,400 publicly traded companies in the country for their feedback. The exchanges didn’t say when the final rules will be published.