China to launch circuit breaker next year: Report

An investor observes stock market at a stock exchange hall in Nanjing, Jiangsu Province of China.
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China will launch a stock index circuit breaker next year, according to media reports, as policymakers attempt to shore up investor sentiment still creaking from a summer rout.

Beijing-based media publication Caixin reported the news on its Mandarin website early Thursday, saying the new measure would go into effect after January 1. No further details were given.

The report, which has yet to be confirmed by Beijing, harmonize with earlier statements made by China's securities watchdog. In September, officials announced they were drafting plans to employ the circuit-breaker mechanism but didn't mention a timeline.

A circuit breaker refers to measures put in place to avert panic in markets by putting temporary halts or a freeze in trading if, for instance, the index in question falls by a pre-determined level.

Under rules proposed in September, a move of 5 percent in either direction from the index's previous close would have triggered a 30-minute trade suspension across the country's equity indexes if the move occurred before 2.30 pm local time. After that, a 5 percent move would have led to a trading freeze until the market close at 3.00 pm.

Meanwhile, a 7 percent rise or fall in the CSI300 Index would have prompted a trading halt in the Shanghai and Shenzhen stock exchanges for the rest of the day.

A multi-month aggressive sell-off earlier this year among Shanghai and Shenzhen stocks, known as A-shares, saw both domestic retail and foreign investors shun Chinese companies amid fears of extreme volatility.

After starting in mid-June, the rout wiped more than $3 trillion off A-shares in a matter of a month, casting a heavy blow to Beijing's political credibility.

"Anything officials do now after what happened this summer will be perceived badly because it looks like they're closing the barn door after the horse has bolted. People may think they're implementing controls so they don't have to relive another market crash," said Tim Condon, head of Asia research, at ING.

But Condon himself doesn't subscribe to that view.

"It's obvious authorities are trying to develop the market in a responsible way. For that to happen, there has to be controls and regulations so this is part of a broader program of strengthening markets."

While the Shanghai Composite has since recovered, with gains of 12.4 percent in the past three months, it remains nearly 30 percent lower since June despite a slew of official relief measures, such as a temporary halt on initial public listings and large share purchases by government-run funds.

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