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China suspends circuit breaker

  • Author:angelia
  • Source:www.diecastingpartsupplier.com
  • Release on:2016-01-08
China will suspend its new stock market circuit-breaker mechanism - designed to stop free-falling prices - from Friday, the Shanghai and Shenzhen stock exchanges have said.

The mechanism, which had been in place since the start of this year, suspends trading on China’s main stock markets if stocks fall 7%.

That circuit-breaker was activated twice this week alone. On Thursday, it was triggered within half an hour of trading. That gave China’s stock markets their shortest trading day in 25 years.

"After weighing advantages and disadvantages, currently the negative effect is bigger than the positive one. Therefore, in order to maintain market stability, CSRC has decided to suspend the circuit-breaker mechanism," a statement from the China Securities Regulatory Commission (CSRC) said.

The renewed share suspension in China caused global shares to fall sharply on Thursday, with Wall Street opening more than 1% lower and European markets trading 2% down.

What are China’s ’circuit-breakers’?

§ The measures were announced in December after a summer of dramatic market losses - used for the first time time on Monday and again on Thursday

§ They automatically stop trading in stock markets that drop or appreciate too sharply - a 15-minute break if the CSI 300 Index moves 5% from the market’s previous close, or a whole-day halt if it moves 7% or more.

§ Supposedly introduced to limit panic buying and selling - which is more likely in small investor-dominated markets like China’s - but critics say they only add to selling pressure the next day.

Analysts said Beijing’s introduction of the circuit-breaker mechanism had proved counter-productive. Investors had panicked they would not be able to sell shares they did not want, rather than being reassured over market stability.

The system is based on the China’s CSI 300 index, which tracks the largest 300 stocks on the Shanghai and Shenzhen stock exchanges and was triggered for the first time on Monday.

If the index falls by 5%, the markets are suspended for 15 minutes.

But when trading resumed after the initial halt on Thursday, it took only one minute for the 7% threshold to be reached, prompting a shutdown for the rest of the day.

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