China is considering mechanisms such as a stock index circuit breaker system to temporarily shut down stock trading in order to prevent further “abnormal fluctuations”, China’s state-run Xinhua News Agency reported late on Sunday night.
The introduction of a stock index circuit breaker system is being studied by China, where trading would be suspended for an unspecified period of time in the event of a “substantial drop”, Xinhua said, citing an official from the China Securities Regulatory Commission.
The regulator will also scrutinize algorithmic trading, curb excessive short-term speculation on index futures, and step up regulation covering stock financing, Xinhua said.
Currently in China, individual stocks and index futures can only rise or fall by 10 percent per day from the previous closing level.
China has recently moved to limit trading of stock index futures by lowering the bar in which it considers as “abnormal trading” in addition to hiking margin requirements and settlement fees.
A rout in Chinese equities deepened in early August after China’s Central Bank moved to devalue its currency, which shocked markets and sent global stocks, currencies, and commodities tumbling and pushed emerging market stocks into a bear market.
Chinese regulators are grappling to control price swings as the Shanghai Composite has plunged nearly 40 percent and wiped out $5 trillion since reaching a peak on June 12, when the market cap of Chinese stocks rose above $10 trillion for the first time ever, as mainland investors borrowed record amounts of funds to buy equities.
Zhou Xiaochuan, the Governor of China’s Central Bank, the People’s Bank of China (PBOC), said on Friday during the Group of 20 nations (G20) meeting in the Turkish capital of Ankara that China’s stock market bubble has already “burst”.
To conclude the two-day meeting on Saturday, Finance Ministers and Central Bankers from G20 vowed to “refrain from competitive devaluations” and monitor potential spillovers amid recent volatility in financial markets, according to the final G20 communique.