China Suspends Circuit-Breaker Rule - "This Is Insane; We Were Forced To Liquidate All Our Holdings This Morning"
Update: China folds - CHINA SUSPENDS STOCK CIRCUIT BREAKER RULE
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?
(13 votes)
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Price I understand it is that thing that is supposed to only go up to ever higher numbers, but this earnings thingy YOU speak of, what the fuck is that?
Perhaps, but talking about "prices" in the absence of TRUE PRICE DISCOVERY is a fool's errand.
We're going to "discover" a lot now.
Panic will eventually turn into a buying opportunity
And eventually a falling knife lands safely
Mr. Gravity can be an asshole.
Suure - getting safely stuck in my right foot.
Pulling that fucker out and bandaging the would is what *I* did for Christmas!
Luckily I didn't get any MRSA from the roasted duck on the knife.
Don't get ill during holdays and weekends - if you want to live. One especially does not want to go to the emergency room on Christmas Eve because all the competent and well rested staff will be off on holidays. Only the newbies and intern doctors pulling a double shift are there; Perhaps half of those will speak the language. The waiting room will be stuffed with a lively mix of immigrants, idioots and drunks. Apart from the time wasted, you might well come home in a much worse state than you left.
That'll fix it. It's never valuations. Peak world stupidity.
Let the market work things through on its own? Novel idea!
I'm surprised they were smart enough to remove the circuit breaker entirely, understanding that would relieve pressure to sell.
I'd have figured instead they would double down and try to tighten controls on selling. That would have been more consistent with the command-and-control mindset that established the circuit breaker in the first place,
Maybe U.S. regulators will at some point become as smart.
Why are circuit breakers only thrown when the market falls?
If there aren't any breakers while markets go up - then there shouldn't be any breakers when the markets go down. Markets will always balance out in the end...up or down.
"markets"... LOL! you're funny.
"panic will turn into buying opportunity"...
LOL! sure, when the "market" actually reflects REAL growth, which is below ZERO!
EVWTHANG OWERWALUED
Sounds about right in a system where you arent allowed to short stuff because some government hack is looking over your shoulder. The only buyers in a market like this are those who are short....that is how a free market works. When you dont have a free market... this is what hapens
"extending the 15-minute break to half an hour"
What he is trying to say is it takes longer than 15 minutes to change the code, compile and reboot the HFT. 30 minutes should be enough.
Not when you're in the john taking a crap too.
Did the U.S. communists call the China communists and tell them to remove the breakers? Probably
desperate move?
deliberate 'pull the rug' move?
So, when does the Chinese military start putting soldiers with machine guns in the exchanges to prevent "unlawful destabilization" of China's finances?
Letting the elites of the party sell in AH. Good luck to everyone else trying to fit through that door.
Well, if anything comes back at all, it will come back in China first. Maybe this really is an opportunity to 'buy at the low'. The US has yet to crash, but its already on its way, with no remedy. At least China via crashing, will have corrected markets, which the US team of fools won't allow.
Could be the Fed wanted the Fat Lady to sing first.
communists stock market .. oxy moron.
recall they moved peole from rural to cities in 1959 and caused a food shortage where some 40 million chinese starved to death and everyone else ate cats and dogs.
let the marxist have their cake I say.
According to Macquarie Research:
https://app.box.com/s/5a4c8phvhb3p8cfp7x2zv01u1mqx0sao
China choices – narrowing
Between a rock and a hard place
Policy decisions are being made on the run...
- China seems to be increasingly making decisions on the run. As discussed in our prior reviews (here and here), China is between a rock and a hard place. It is facing an irreconcilable set of choices, with structural reforms and desire to place the country on a sound long-term footing clashing violently with short-term objectives of stability and reduction in excessive levels of volatility.
- Opening capital account and liberalization are in conflict with the country’s persistent objective of controlling both quantity and prices (an impossible feat but China is constantly attempting to do both). Liberalization and de-regulation (including SOE and public sector reforms) threaten to undermine hoarding of labour force and place greater pressures on wages, but hold out a long-term promise of significant competitive and structural benefits. Capital market reforms, whilst improving long-term capital allocation and supporting consumer re-balancing, expose large parts of the economy to disruptive changes. It is truly a dilemma from hell without any obvious exits.
...due to failure to re-balance & challenging global outlook
- Most of these challenges stem from China’s persistently high saving rates (~48% of GDP) which forces the country to continue investing (~45% of GDP) whilst exporting the balance to other countries. As discussed here, we believe China is starting to run into a number of natural constraints (such as declining ROE/ROIC; rapidly rising debts; diminishing capacity of other countries to absorb China’s surpluses). The easiest and the least painful solutions are not available (i.e. spontaneous rise in consumption at a higher rate than increase in investment and robust recovery in global economy and trade). Hence, China is facing a multitude of sub-optimal decisions and choices, such as significant rise in public sector spending; transferring value from corporates to households; devaluing Rmb; and/or blunt administrative directives.
- The problem with each of these choices is that addressing one area causes significant disruption in another. Lowering Rmb helps with competitiveness and releases some of the pressure, but at the cost of lower domestic liquidity and potential for significant capital flight. Given that China can no longer deleverage, it must ensure that liquidity constantly rises and that there are always ‘bubbles’ to support further leveraging. Unlike the Fed, China seems to be uncomfortable with the idea of perpetual leveraging, even though it does not have an alternative. Hence, confusing signals between reforms and administrative actions. Whilst in the last eight years most governments have been using direct intervention, administrative measures work best when they are relatively consistent rather than rapidly changing in the mid-stream.
Lowering China weighting; adding to India, Phil and Mal
- Although we maintain that China has a broad range of instruments and low degree of external vulnerability, we believe the current confusion is inviting much larger capital outflows whilst unnecessarily prolonging the agony of high volatilities. Unless China abandons reforms (such as introduction of capital control), it has no choice but to further lower currency; embark on fully-fledged QE and embrace non-capital market reforms. It is decision time and risks are rising. We are lowering our position in China, adding to our existing overweight in India and the Phil whilst also raising Mal to neutral weight.
China "increasingly making decisions on the run".....and they called us the Running Dogs!
chen be nimble
chen be quick
chen got fucked by a big red candlestick.
thing is, the fair value of a lot of those companies is zero, so what's the dif?
They will be jumping off buildings.
(But get stuck in the air pollution.)
funny to hear americans gloat about this while US gov has it's own circuit breaker... it buys everything....
what a joke.. at least in china they can sell... in USA you are stuck in never never land
"what a joke.. at least in china they can sell... in USA you are stuck in never never land"
While not an investor or economist, looking at the DOW currently down 199 points, it does seem that someone is selling....
Casino breaking bad. Never saw that coming. [chuckle]
Coming to a casino near you.
Now I understand that you had said "mock it!"
The Fed is doing the same thing as what is propping up the Chinese stock system.. All the Central banks are doing this. Unfortunately, this is Reaganomics at its finest. I thought that we all came to the conclusion that trickle down economics not work... but government has to run.. and for that taxes have to go up on those that are benefiting from the 'monitorization' project. This is half baked and will give us all diarrhea.
Forget the technical analysis, circus breakers BS. Global trade collapsing, global demand collapsing, global income minus debt obligation entered abyss. Global supply runs on overrev to fund preparation to coming regional or global wars.
It is not technical issue or even market issue since markets long become gaming parlors for the rich. It is programmatic collapse of world economy into neo-feudal serfdom concocted by close circuit of world oligarchy via monetary system manipulation and global suspension of the rule of law.
Whether or not FED’s plunge protection team (Fed’s trading desk) save a day, a week, a month or another year it does not change hard economic facts of fundamental collapse of the mainstream economy And whatever left from the monopolized markets will be rattled in violent convulsion again and again since there is nothing behind all those bloated indexes or numbers.
What happening in China has been well described below 5 months ago namely their failure of transition from manufacturing to services amind global demand collapse including internal Chinese markets and hence the turnaround to competitively devalue Yuan in respect to dollar, yen, and other Asian currencies via direct means or through lowering interest rates, lowering reserves as well as fiscal stimulus. Yuan has at least 25% devaluation to go whilet they are trying to stem massive capital flight.
WORLD WAR DOLLAR (WW$)
https://contrarianopinion.wordpress.com/economy-update/
This appears to be how China is covertly dumping U.S. Treasuries:
China did the same thing several months ago.
Yup. That's one way for the Fed to get those Treasuries out of their hot little hands.
ha ha ha, they wanna ramp it up, but can't when they shut it down.
Friday is coming :
The restriction replaces an existing six-month ban on any secondary market stock sales that is due to expire Friday, it said.
I see a little Chinese guy with a 50,000 sf copper wire factory that was built in the last ten years sweating bullets as he has several loans on the property all backed by the same ton of copper in some warehouse...that probably is no longer there...and he is seeing his sales crash....and he sees the crash coming....and now his stock is worth nothing....not good..and thousands of stories like this in China right now..
It's a nation of hoarders.
The chinese love to gamble which explains why their P/E ratio's are so twisted high. Let them have their fun! Hope it doesn't ruin ours. lol
It's east Asians in general. I remember when I first started dating my ex-wife, and I went to a Vietnamese party with her. All the men were in a back room playing cards. Each of the players was standing up with his back against the wall because they were convinced the other players were cheating (probably were).
Let's put it this way; It ain't just "joss".
Wish I could give you more than one up vote.
There is that one degenerate thing about them, they gamble like motherfuckers.
"We were forced to liquidate all our holdings"
In other words, we are 10x leveraged up the wazoo.
Stock markets across the globe are to varying degree stoked by margin right? Surely we've hit the point when whatever the cause the markets in China have fallen enough for brokers to start calling in the casino players causing even bigger losses.
Is this what "deleveraging" looks like??
The banks should encourage growth according to Alexander Hamilton, instead what we have are institutions that are predatory and are parasites feeding on the wealth from our hard work. They should be broken up and the only candidate who is talking about it is Senator Sanders. Check out radio interview yesterday on the Background Briefing show for interesting interview with Wallace Turbeville, who was an investment banker at Goldman Sachs for 12 years .
http://ianmasters.com/sites/default/files/mp3/bbriefing_2016_01_06b_wall...