China to Start Stock Circuit Breaker After New Year, Caixin Says

China will implement its planned stock-market circuit breaker after the new year starts, Caixin reported.

Rules have been revised to shorten the share suspension time, Caixin said, without citing anyone or specifying exact dates. Under a proposal announced in September by the country’s two bourses and the futures exchange, a move of 5 percent in the CSI 300 Index would trigger a 30-minute halt in trading of stocks, options and index futures.

Turmoil in China’s stock market sent a gauge of price swings to its highest level since 1997 earlier this year as leveraged investors unwound bullish bets on concern valuations were unjustified amid slowing economic growth. To halt the $5 trillion rout, the government banned share sales by major investors and allowed more than 1,400 companies to suspend trading.

“The introduction of this mechanism is another effort from China to stabilize the local stock markets, moving it gradually towards that of developed markets,” said Bernard Aw, a strategist at IG Asia Pte in Singapore. “They need more than just circuit breakers to stabilize volumes. Increased institutional and foreign participation is another part of the equation to reduce excessive volatility.”

Under the plan announced in September, a move of 7 percent by the CSI 300 measure would halt trading for the remainder of the day. The rules would also apply to convertible bonds and some other equity-related securities. The CSI 300 index was chosen because it includes some of the largest companies traded in both Shanghai and Shenzhen, the bourses said in a statement.

Existing Limits

Individual stock price moves on mainland Chinese bourses are already subject to a 10 percent daily limit, while the so-called T+1 rule prevents investors from buying and selling shares on the same day.

China’s planned limits for stopping trading are lower than in the U.S., which installed market-wide circuit breakers after the 1987 crash. A 7 percent drop by the Standard & Poor’s 500 Index would trigger a 15-minute halt for companies listed on the New York Stock Exchange and Nasdaq Stock Market. one.

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