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The Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE) and the China Financial Futures Exchange (CFFEX), upon approval by the China Securities Regulatory Commission, plan to usher into a circuit breaker mechanism for index under the precondition that the existing price limit mechanism for the individual stocks is kept, in a bid to control the risk of dramatic fluctuations in the market, further perfect the trading mechanism in China’s securities market, maintain the market order, protect the investors’ rights and interests and boost the sound and sustainable growth of the securities market.
The general arrangement for the circuit breaker mechanism for index is as follows: when the daily trading limit of CSI 300 Index reaches a threshold value, trading of all the stocks, convertible bonds, detachable bonds, stock options and stock-related products on the SSE and the SZSE will be suspended, and that of all the stock index futures contracts on the CFFEX will be suspended as well; after the time for the trading suspension expires, trading will be resumed or the market will be closed subject to different conditions. The key points and main thoughts for the circuit breaker mechanism for index are as follows:
1. Taking CSI 300 Index as the benchmark index for the circuit breaker mechanism. The main thoughts are as follows: first, cross-market index is better than single-market index. The former boasts higher representativeness as it can more comprehensively reflect the general fluctuations of the A-share market, while the latter mainly shows a certain market’s operation; second, priority goes to CSI 300 Index in the selection of all the cross-market indexes. Currently, the cross-market indexes familiar with the investors in the A-share market include CSI 300 Index (with most of its constituent stocks being stocks of medium-and-large-sized market values) and CSI 500 Index (with most of its constituent stocks being stocks of small-and-medium-sized market values). The market capitalization coverage of CSI 300 Index and the number and scale of the products tracking the index are all higher than those of CSI 500 Index.
2. Two threshold values, 5% and 7%, for the circuit breaker mechanism are set for both upper and lower price limits, and each value could be reached for only one time everyday at most. The main thoughts are as follows: first, the first threshold value of 5% could meet both needs of setting a cooling-off period and maintaining normal trading; though the second one of 7% is seldom reached, it should be also considered against major abnormities; second, two-way circuit breaker mechanism is more conducive to curbing over-trading and controlling market fluctuations. As the domestic market is at the “emerging and transitional” stage, with most of the investors being small and medium-sized retail investors, dramatic two-way price fluctuations have lead to not only panic slumps but also over-speed rises, including short-term dramatic rises caused by accidents. Thus, when the market encounters frenetic rises, the circuit breaker mechanism is needed to stabilize the market sentiments, prevent the investors’ over-reactions to the rises and give more time for the investors to further confirm whether the current prices are reasonable or not.
3. Gears are set to fix the time of circuit breaker for the index. When the first threshold value of 5% is reached, trading will be suspended for 30 minutes, after which a call auction will be held and then the intra-day trading will continue. If the first threshold value of 5% is reached at or after 14:30, or the second threshold value of 7% is reached at any time of the whole day, trading will be suspended till the market closing. If the circuit breaker mechanism lasts till the market closing at 15:00 with the trading not resumed, relevant securities’ closing prices will be the weighted average prices of all the transactions (including the last one) within one minute before the last transaction on the very day, while the closing prices of the option contracts will still be subject to relevant rules.
4. Special time intervals are arranged. First, the circuit breaker mechanism will not be implemented at the stage of call auction of the market opening; if the index at the market opening triggers the first threshold value of 5%, the circuit breaker mechanism will be implemented from 09:30, and trading will be suspended for 30 minutes; if the index at the market opening triggers the second threshold value of 7%, the circuit breaker mechanism will be implemented from 09:30, and trading will be suspended till the market closing. Second, if there is not enough time in the morning for the implementation of the circuit breaker mechanism, supplement will be made after the market opening in the afternoon, and the market closure time at noon will not be included into the time for the implementation of the circuit breaker mechanism, so that the investors could adjust their orders. Third, the circuit breaker mechanism is valid in the whole day. Given that the market-closing stage of the domestic A-share market is apt to encounter irrational dramatic fluctuations, the circuit breaker mechanism will still be applicable at the market-closing stage. Fourth, on the stock index futures’ delivery days, the circuit breaker mechanism will be implemented only in the morning, and the trading will be resumed in the afternoon whether the trading suspension is triggered by the threshold value of 5% or 7%, so as to calculate the delivery and settlement prices of the stock index futures for a smooth delivery.
5. The scope of the circuit breaker mechanism for the index and the linkage of futures and spot. When the circuit breaker mechanism is implemented, trading of all the stocks, funds, convertible bonds, detachable bonds, stock options and stock-related products on the SSE and the SZSE is suspended, and the specific securities products involved in the implementation of the circuit breaker mechanism will be subject to relevant announcements. And trading of all the stock index futures products will be synchronously suspended (including stock futures products of CSI 300 Index, CSI 500 Index and SSE 50 Index), while that of treasury bond futures will still be traded normally.
6. The arrangement for the circuit breaker mechanism for the index and trading suspension. If trading resumption is needed after a listed company applies for trading suspension of its shares or newly-listed shares encounter in-session temporary trading suspension, and the planned trading resumption time coincides with that of the implementation of the circuit breaker mechanism, trading will be resumed after the time of the implementation of the circuit breaker mechanism expires. If the trading suspension time of relevant stock does not expire after the implementation of the circuit breaker mechanism, the trading suspension will continue.
The SSE, the SZSE and the CFFEX will, according to the above key points, respectively supplement special regulations (see attachments) on the implementation of the circuit breaker mechanism in their relevant trading rules, and they hereby solicit opinions from the public.
Please send your opinions or suggestions to the relevant exchanges by e-mail before September 21, 2015.
Shanghai Stock Exchange: tradingdata@sse.com.cn
Shenzhen Stock Exchange: jygz-hyb@szse.cn
China Financial Futures Exchange: qzqhsa@cffex.com.cn
Shanghai Stock Exchange
Shenzhen Stock Exchange
China Financial Futures Exchange
