Photographer: Qilai Shen/Bloomberg

China to Restrict Trading Halts, Report Says, Boosting MSCI Odds

  • Exchanges set to publish new rules as early as next week
  • Stock suspensions seen as hurdles for China in MSCI inclusion

Shanghai and Shenzhen stock exchanges will publish new rules on trading halts as early as next week, the China Securities Journal reported, a move that would raise the odds of the country’s stocks being included in MSCI Indexes.

The rules are aimed at curbing arbitrary trading halts by companies listed in China, so-called A shares, and limiting the trading-halt period, the report said on Tuesday, citing an unidentified official at Shanghai Stock Exchange. Some public companies abuse the current system to announce merger and acquisition plans to push up stock prices and then say the deals fail, the report said.

“The rule change, if realized, is in part to clear the hurdles for the A share market’s inclusion in the MSCI Indexes,” Gao Ting, Shanghai-based chief China strategist with UBS Securities Co., said by phone. “There were over 1,000 shares halted for trading during the market frenzy last July. The regulators clearly think that trading halts are being abused and is aiming to address that.”

China’s exchanges allowed trading halts that shut down half the stock market as officials struggled to stop a $5 trillion selloff last summer. MSCI said in March a decision to include yuan-denominated shares in its index will depend in part on regulators implementing changes so that widespread halts can’t happen again.

Main Obstacle

A Bloomberg poll of strategists and fund managers found that 16 of the 23 surveyed named stock suspensions as a main obstacle to China’s inclusion in MSCI’s indexes. Capital controls, government intervention, stock beneficiary ownership and cross-border investment quotas were other common concerns ahead of MSCI’s decision in June, the survey showed.

The Securities Journal report said that the rules will require that if a company halts its shares for restructuring, it has to disclose in the first month which industry the deal target is in. If the halt extends into a second and third month, the companies will have to disclose more details on the target.

If the target changes after trading resumption, the exchange will retrospectively probe the restructuring and take measures if wrongdoings were found, according to the report.

— With assistance by Gary Gao

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