China Suspends Circuit-Breaker Rule - "This Is Insane; We Were Forced To Liquidate All Our Holdings This Morning"

Tyler Durden's picture


China Securities Regulatory Commission Suspends Stock Circuit Breaker Rule, CSRC Says on Weibo

According to the Shenzhen Stock Exchange messages, to safeguard the smooth operation of the market, approved by the China Securities Regulatory Commission and Shenzhen Stock Exchange decided to suspend the implementation of the "Shenzhen Stock Exchange rules" provisions of Chapter VI of the "index since January 8, 2016 fuse "mechanism.


In addition, according to gold in the news, to maintain the smooth operation of the market, approved by the China Securities Regulatory Commission, China Financial Futures Exchange decided since January 8, 2016, to suspend the implementation of the CSI 300, SSE 50, the CSI 500 stock index futures fuse system.

In Q&A, CSRC insists circuit breakers didn't cause the China meltdown but admits they may have aggravated sell-off.

Here is the full Q&A from the CSRC:

Q: The three exchanges issued a notice to suspend the fuse index since January 8, the Commission how this comment?


A: The main purpose of the introduction of index fuse mechanism is to provide the market "cooling off" period, to avoid or reduce volatility in the case of hasty decisions, protecting the legitimate rights and interests of investors, especially small investors; implications for program trading inhibition or down effect; in response to technical or operational risk provide emergency response time. Fusing mechanism is not the main cause of the market crash, but nearly twice the actual fuse situation, did not reach the expected results, while the fuse mechanism has a certain "magnet effect", that is, when the fuse near the threshold some investors ahead of the transaction, resulting in stock Acceleration touch fuse threshold, or down from the role. On balance, the current negative impact than positive effects. Therefore, in order to maintain market stability, the Commission decided to suspend the fusing mechanism.


Fuse mechanism introduced in 2015 after the occurrence of abnormal fluctuations in the stock market, should appeal to all concerned started, the relevant program after a careful argument to the public for their views. Fuse mechanism is a new system, there is no experience in our country, but also there is a process to adapt to the market, we need to gradually explore, experience, dynamic adjustment. The next step, the Commission will conscientiously sum up experiences and lessons, the organization concerned to further research to improve the program and solicit opinions from all sides, and constantly improve the mechanism.

The mangled response is a result of the unprecedented local outcry detailed earlier.

"It couldn't be worse," exclaims one manager who started his fund mid-year in 2015, blaming China's equity market carnage on its newly-created circuit-breakers (as opposed to the fact that the Chinese market trades at 64x P/E and there are sellers everywhere). "Panic will eventually turn into a buying opportunity," hopes one strategist while another proclaims "poorly-designed" circuit breakers need to be adjusted to 10% (seriously).


Blame is everywhere,  but it is Chen Gang who summed up the panic best, "this is insane... we were forced to liquidate all our holdings this morning."

Crushed by the Double-Halt...




Circuit breakers may be "creating a herding effect" and "intensifying panic" blames Galaxy Securities Sun Juianbo, as investors accelerate selling after the 1st trading halt as they seek liquidty. But for one asset manager at least, as Bloomberg reports, Chinese equity markets have become too much...

A Shanghai fund dumped all its holdings as Chinese shares tumbled and triggered a circuit-breaker that halted trading in the world’s second-biggest stock market.


“This is insane,” Chen Gang, chief investment officer at Shanghai Heqi Tongyi Asset Management Co., said in an interview on Thursday. “We were forced to liquidate all our holdings this morning,” said Chen, whose firm manages about 300 million yuan ($45.5 million).


Many private funds and hedge funds in China have agreements with investors spelling out mandatory liquidation levels if their holdings drop below a certain value.

As anxiety rises ahead of China's lifting of short-selling restrictions, Chinese regulators have imposed a limit on the amount of stock major corporate shareholders can sell as authorities move to curb the nation’s market rout.

The CSRC capped the size of stakes that major investors are allowed to sell at 1 percent of a company’s shares for three months effective Jan. 9, the regulator said in a statement on Thursday.


The restriction replaces an existing six-month ban on any secondary market stock sales that is due to expire Friday, it said.

Chen, who commented before the CSRC announced its new caps, said he “won’t consider getting back into the market until that overhang is gone and CSRC improves its circuit-breaker system, for instance by extending the 15-minute break to half an hour.”

“A trading break of 15 minutes or even longer wouldn’t ease their nerves or get them a clear picture of the fundamentals,” said Polar Zhang, a Beijing-based analyst at BOC International Holdings Ltd. “On the contrary, it’s draining liquidity as everybody tries to get out of the door before the door is closed.


If CSRC doesn’t improve the mechanism, Zhang said he expects to cut trading volume by 20 percent.


"It is clearly adding some unintended consequences, such as people trying to sell before the break, which is actually accelerating the decline," said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Shanghai. "Investors need time to adapt to the new rules. This type of development in a retail-driven market is bound to be challenging."

However, Citi's Cheung adds some rational perspective, noting "the circuit-breaker should not affect market direction fundamentally."

Correct - so what is?

Maybe this? Do you really think this downside vol is all about "circuit-breakers" or is it "panic" at this...



Still think that selling China's stock market is unreasonable?


If China lifts the circuit breaker rule... who will they blame if stocks crash again tonight?

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y3maxx's picture

Gonna soon see hundreds of "jump off building" suicides.

UndergroundPost's picture

Rigged markets and Marxism of any stripe - whether Maoism, Leninism, Obamaism or Draghi-ism, all shades of International Socialism - lead to destruction. Until the socialist jackasses in China, EU, USSA, Russia and ALL CENTRAL BANKERS world over are jailed, there will be never be open markets or true prosperity. FREE MARKETS REQUIRE FREE PEOPLE

SWRichmond's picture

"Panic will eventually turn into a buying opportunity,"

Yes, eventually, and all of those productive assets, while under new ownership, will remain in China, marked down to the point where they are economically viable again.  "Investors" will lose money, but the productive assets will remain in China, to serve the Chinese economy.  Eventually.  Given they allow an actual bankruptcy to occur, unlike the US.  If so, then followed by an actual recovery, unlike our ersatz one here in the West.  Price discovery?

Occident Mortal's picture

From what I hear the main land Chinese exchanges are not too much of a concern as the losses are mainly retail investors with little contagion across the financial industry. It is the Hong Kong exchanges which have the potential to spread contagion throughout the financial universe as these are largely institutionally owned.


If the Chinese middle class lose their life savings on the stock market it will simply force desperate Chinese workers to work even harder to recoup losses, resetting the wage delta and could potentially lead to a second Chinese manufacturing boom.


Why else has China separated their domestic retail investors from institutional investors? It stinks of control and subjugation.



NoDecaf's picture

China doesn't have HFT machines!? Ha... Amateurs

SWRichmond's picture

If the Chinese middle class lose their life savings on the stock market it will simply force desperate Chinese workers to work even harder to recoup losses, resetting the wage delta and could potentially lead to a second Chinese manufacturing boom.

The ones with gold will not lose their life savings in stawks.  Only stupid westerners have their "life savings" in the system where it can be stolen from them on a whim.

Dog Will Hunt's picture

Ultimately, Leninism couldn't possibly have been farther from Marxism--which isn't a defense of either one.  If the former is a stripe of the latter, it's a razor-thin one at best.   

TeamDepends's picture

No sympathy for those who invested in a communist stock market. You really shoulda knowed better.

surf0766's picture

Kinda like investing in the U.S. market.



swass's picture

Circuit breakers don't change market direction and don't reduce panic.  I agree that they intensify panic and actually cause market problems because those that NEED to liquidate to meet capital requirements can't, often compounding the issue.

FrankieGoesToHollywood's picture

You mean a cheap chinese circuit breaker failed and wasnt able to protect the system? Who could have seen that coming?

jcaz's picture

Gee,  the market isn't fair?  Oh SNAP!!!!

jcaz's picture

Gee,  the market isn't fair?  Oh SNAP!!!!

khnum's picture

Should of stayed with cockfighting as the major investment vehicle

bamawatson's picture

is that like rahm & b hussein homobama fighting over reggie?

LawsofPhysics's picture

"communist stock market" -

You are going to have to be a bit more specific.

Cangaroo.TNT's picture

"We were forced to liquidate all our holdings"

Maybe now some retards from yesterday will understand the difference between having (electronic versions of) paper certificates in a company and owning durable items in which you are in physical possession.

LawsofPhysics's picture

So long as peasants can "swipe that EBT" and CEOs can get a fucking bailout that understand will remain ellusive...

Moral hazard and resource/capital misallocation can be a real motherfucker.

NoPension's picture

This should be interesting to watch tonight.

I tuned in last night, and watched the A50 go limit down in less then 30 minutes.

GRDguy's picture

Guess you have plenty of popcorn left for tonight's show.

steveharless's picture

TeamDepends said: No sympathy for those who invested in a communist stock market.

Look around you ....our government has turned communist in the last 7 years; Obama is skirting the second amendment, BLM is stealing land from people, california is trying to force immunization on children in schools. wake up!

Antifaschistische's picture

the term "communist" becomes a distraction, you are correct.  the point is, we are heading down the central planning highway full speed ahead.  We will never say 'communism' in America again since it was deemed a blacklisted word a generation or two ago, but it's all the same thing.  big banking, big pharma, big energy, big government.....the oligarch class determing all the winners and losers.  surprise, they all vote for themselves as the winners.

Marco's picture

I have an alternative explanation for forced vaccination.

The rich have the means to avoid vaccination for their kids regardless of the law, but they need herd immunity for that not to endanger them ...

lakecity55's picture

No shit! Bath House and all his cronies luv the ChiComs!

Hitlery still wears those Mao jackets...

StackShinyStuff's picture

“We were forced to liquidate all our holdings this morning,” said the man as he was being hauled off for "re-education."

FireBrander's picture

China to Announce New Selling "Guidelines":

~$1000 "liquidated" = "re-education".

~$100,000 "liquidated" = "incarceration".

$1,000,000+ "liquidated" = "execution".


pods's picture

"Well it was a fun ride. I guess it's back to selling bananas.  Where's my cart?"

-Chinese Daytrader

LawsofPhysics's picture


That cart has been "rehypothicated"...

__Usury__'s picture
__Usury__ (not verified) pods Jan 7, 2016 9:53 AM

''Those china men will be going back to the rice patties on the bicycles they road in on.''-Mako

Thought Processor's picture


The downside of greed commeth.

FireBrander's picture

Does this mean I can't convert my wealth into thier, new, worlds reserve currency?

LoneStarHog's picture

To hell with all these so-called halts...Let the markets do what they will do...If all these idiots (gamblers) are ignorant/stupid enough to be in ANY global so-called market, then let them all get trampled to death in the stampede through the corral gate.

Rainman's picture

“We played the market when we thought stocks had hit rock bottom,” one investor says to another, “only to find there was a basement below. We played the market when prices were in the basement, only to find there was a cellar underneath that, and when we kept playing in the cellar, we found that below that there was hell. Then we took our lives in our hands and kept playing when stocks were in hell — only to discover it’s true what they say: There are 18 levels of hell!”

           ..... joke making the rounds in China

FireBrander's picture

You need the halts because of the can, LITERALLY, go to zero in a fraction of a second.

A simple programming error at one the BIG banks could wreck the entire global financial system in the blink of an eye...before you get rid of the "halts", you had better get rid of the computerized, high speed, traders.

RiverRoad's picture

Did our QE of the last 7 years contribute to this China bubble?  Was the Fed's recent decision to raise rates a "them or us" decision?  There's an OOPS in here somewhere.

FireBrander's picture

I think it was a "them AND us" decision.

The USA is in the best position to absorb a Global financial catastrophy...well be beaten and bruised, but we'll live to see the other side...where we'll find the entire planet for sale at pennies on the don't have to be smart to see this, (I see it:)...plenty of precedent in history...the 1% blows the bubble, the 99% are drawn in, the 1% backs out and positions for a crash, the 99% keep pouring crashes, the 1% are well insulated, the 99% are robbed...and we start over...

RiverRoad's picture

Exactly.  And the Fed wanted the Fat Lady, China, to sing first..... a la the recent rate hike, IMO.

MrNosey's picture
MrNosey (not verified) Falconsixone Jan 7, 2016 10:30 AM

Communism/capitalism = disasterism (new word)


The Saint's picture
The Saint (not verified) Falconsixone Jan 7, 2016 11:43 AM

China might have to start a war to save their economy.  Let's see, who could they beat up on to give manufacturing a boost?

Boris Badenov's picture

Mr. Robert Prechter was right on this concept.

LoneStarHog's picture

Please don't use Prechter and right in the same sentence.

curbjob's picture

Circuit breakers ? Who the fuck needs circuit breakers when fuses work so much better.

Dr. Engali's picture

What is the P/E thingy you speak of Tyler? That doesn't have anything to do with fundamentals does it? Those were thrown out the window lond ago.