Chininese exchanges plan circuit-breaker to stabilise market

Date: September 08, 2015

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China's latest step to curb stocks' wild ride: Circuit breakers

BEIJING China's Shanghai and Shenzhen Stock Exchanges and the China Financial Futures Exchange plan to introduce a 'circuit breaker' on one of the country's benchmark stock indexes to "stabilise the market", the Shanghai exchange declared.

Here is what you need to know:

What is a circuit breaker?

A circuit breaker refers to measures put in place to avert panic in markets by putting temporary halts or a freeze in trading if, for instance, the index in question falls by a pre-determined level.

How will the circuit breaker work in China?

The proposed mechanism will be tied to the benchmark CSI300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, where a move of 5 percent in either direction from the index's previous close will trigger a 30-minute trade suspension across the country's equity indexes if the move occurs before 2.30 pm local time. After that, a 5 percent move will freeze trading until the market close at 3.00 pm.

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Meanwhile, a 7 percent rise or fall in the CSI300 Index will prompt a trading halt in the Shanghai and Shenzhen stock exchanges for the rest of the day, the statement posted on the exchange's website said. Both circuit breakers will only be activated once a day.

How do things work currently?

Under current rules, individual stocks and index futures are allowed to move a daily maximum of 10 percent from the previous closing level in either direction. Trading of a stock stops when it hits the daily trading limit.

Source: CNBC