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?