China is set to launch a circuit breaker for the stock markets starting next year. China’s securities regulator says the move will help ensure a stable and healthy market.
According to a recently released joint statement by China's major bourses, a move of 5 percent in either direction on the CSI 300 Index, China’s blue-chip tracker, would trigger a 15-minute halt for stocks, convertible bonds, stock options and futures contracts, while a swing of 7 percent would freeze trading for the rest of the day.
"The introduction of a circuit-breaker mechanism can offer a “cooling-period”, whenever there are sharp fluctuations in the market. It helps ensure a stable and orderly market, investor protection, and the long-term healthy growth of the capital market," said China Securities Regulatory Commission spokesman Deng Ge.
The new rules were first proposed in September, in the wake of the summer’s market rout. Deng says establishing the mechanism will be a gradual process.
"It is a new policy in the Chinese market. The current plan has taken into account complexity and feasibility of the rules. It's based on global experiences and Chinese market's own situation," Deng said.
Circuit breakers are a common practice in developed markets. The US set up such a mechanism after the 1987 crash. A 7 percent drop in the S&P 500 Index would trigger a 15-minute halt for stocks listed on the New York Stock Exchange and Nasdaq Stock Market.