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

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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?

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Thu, 01/07/2016 - 10:42 | 7010974 surf@jm
surf@jm's picture

Oh, and I`m sure Bernie Sanders has a real great plan to replace the banks he breaks up.......

GOSBANK.....was the central bank of the Soviet Union and the only bank whatsoever in the entire Union from the 1930s to 1987

Thu, 01/07/2016 - 11:14 | 7011163 tarabel
tarabel's picture

 

 

But think of the convenience of having a branch everywhere you go. People exiled to Siberia didn't have to face the inconvenience of finding a reputable local financial organization in their new home gulag.

And totally backed by the State-- give or take the five or six complete currency wipeouts and reissues. But even that was very smoothly handled.

Thu, 01/07/2016 - 11:25 | 7011221 pinky lee
pinky lee's picture

He does. If you'd bother to read.

 

Reinstate Glass-Steagall: Separating commercial banking from investment banking will buffer normal Americans from risky investments.
Break up the Big Banks: Banks that are “too big to fail” make risky investments because they know that the American taxpayer will bail them out — and are therefore too big to exist.
Tax on Wall Street Speculation: Change the tax code to discourage short-term gambling and instead promote long-term investing.
Thu, 01/07/2016 - 11:52 | 7011432 pinky lee
pinky lee's picture

Senator Sanders's full plan includes:

  • Breaking up the big banks and financial institutions
  • Reinstating a 21st Century Glass-Steagall Act to clearly separate traditional banking from risky investment banking and insurance services
  • Ending too-big-to-jail -- so that Wall Street executives are prosecuted for causing the near collapse of our economy
  • Establishing a tax on Wall Street to discourage reckless gambling and encourage productive investments in the job-creating economy
  • Capping credit card interest rates and ATM fees  
  • Allowing Post Offices to offer banking services 
  • Reforming credit rating agencies
  • Reforming the Federal Reserve 

http://act.democracyforamerica.com/sign/SandersWallSt/?source=150106rr

Thu, 01/07/2016 - 12:03 | 7011543 surf@jm
surf@jm's picture

sorry not convinced......

Never trust a commie..........

Thu, 01/07/2016 - 19:09 | 7014301 lakecity55
lakecity55's picture

Hey there is a lot there Libertarians could agree with.

Ron Paul has also been in this territory.

But Bernie is a Statist, he only gets half of it right.

Thu, 01/07/2016 - 10:50 | 7011020 Jethro
Jethro's picture

LOL! Fuck Bernie Sanders.

Thu, 01/07/2016 - 11:41 | 7011198 pinky lee
pinky lee's picture

HA! Your emptyheaded and  uncivil comment reveal the level of dialogue which you are capable of. Guess what? he's going to take Iowa and NHampshire. you want to know why? The youth of our country know what's best for the future and will overwhelmingly vote for the Senator instead of the bankers best friend, Ms Clinton. Real change is coming.

Thu, 01/07/2016 - 12:16 | 7011640 Jethro
Jethro's picture

Why should I be "civil" when you promote a thieving old douche bag? I'm done with civility. I'm done with PC discourse. You say that the youth of this country know better? The youth of this country are naive, coddled sheep.

Thu, 01/07/2016 - 12:21 | 7011673 trulz4lulz
trulz4lulz's picture

Yes the same youthd that saved the world woth Onamba is going to dave the eorld AGAIN with Bernie??? Bwaahahsha

Thu, 01/07/2016 - 10:39 | 7010954 surf@jm
surf@jm's picture

"Margin Call"..... gentlemen..........

Thu, 01/07/2016 - 10:53 | 7011042 cheech_wizard
cheech_wizard's picture

>China Securities Regulatory Commission Suspends Stock Circuit Breaker Rule

So what can we expect to see tonight? Down another 7%? 

Standard Disclaimer: What, we don't have a betting pool on this?

Thu, 01/07/2016 - 11:11 | 7011146 Jethro
Jethro's picture

Maybe a dead pool would be more appropriate?

Thu, 01/07/2016 - 11:12 | 7011141 inosent
inosent's picture

This market has been a lot lower. Honestly, I don't see the problem. Sure, if the index breaks 2k or something in the next week, or 1k in the next month, and if this selling is the precursor, maybe today's sellers are the 'lucky' ones getting out 'early'. But I doubt it. 1.5 BB ppl with a current 15% market participation is an upside 'disaster' waiting to happen.

Thu, 01/07/2016 - 11:25 | 7011223 conraddobler
conraddobler's picture

LOL no shorts to squeeze to stop the drop.

Their ignorance of how markets work is showing.  It does not matter how "smart" the market is always smarter than any one person.  If you are manipulating a market to achieve some goal you're doing it wrong.

The idea is that free and fair price discovery will guide itself in terms of sorting out what the economy needs or does not need if you try and tell it what it needs you screw everything up.

It is a profund ingorance of market behavior to think people are smarter enough individually or even in groups to anticipate these things accurately and make adjustments.

The best thing you can do is to focus on fairness between participants then move out of the way.  This is already documented by us over long histories.

The fact we're not doing this now and are declining precipitously can not be lost on these geniuses unless they of course think we're just stupid and they can manage to manipulate the markets correctly.

Total asshats.

Thu, 01/07/2016 - 11:29 | 7011252 Fuku Ben
Fuku Ben's picture

While this sounds dangerous in Asia this is probably the best move. The good times haven't been going on long enough to outlast a whole generation that remembers the bad old days. And the older generation knows what its like to have the government repeatedly take everything so they aren't very trusting. Back in the 80's even in America many Asians would keep all their money at home. There was a home invasion robbery right across the street from where I lived at that time. Nothing like a shootout at 2am to get the blood flowing.

Circuit breakers may be "creating a herding effect" and "intensifying panic"

It is creating an intensified panic.

If the government continues to lock it down everyone will continue to panic sell and it could go all the way to the bottom. The higher levels of government would have to step in and things could start getting very nasty. This wouldn't be good for them in relation to maintaining the stability and trust they've built up over the last 25 years or so.

However, if they open it up they may have a chance that the market could stabilize. The next open should be interesting. I'm sure the top party officials will be watching this one very closely. If things go bad expect a few regulators to disappear. They don't cover for failure in communist countries like they do in fascist ones. Just ask the families of the guys they executed after stealing and gambling away government funds in Macau.

Thu, 01/07/2016 - 13:36 | 7012275 cornflakesdisease
cornflakesdisease's picture

Another reason not to trade Chinese stocks or invest there.  It's just a comlete joke.

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