Shenzhen bourse waives first-day rule

The Shenzhen Stock Exchange has waived the rule governing newly listed stocks' first-day trading, in a fresh attempt to make listing companies price their shares properly.

From now on, stocks making debuts will be suspended from trading for an hour if their prices climb or slump by 10 per cent or more from opening prices, the exchange said in a statement, adding that a similar, previous rule had proved effective in curbing rampant speculation.

On March 8, the smaller of the two stock bourses on the mainland issued a rule under which trading of a new stock would be halted until 2.57pm - three minutes to closing - if the share price jumped or fell by more than 10 per cent from the opening price.

The China Securities Regulatory Commission (CSRC) has been trying to curb irrational trades of a stock on the first day of trading ever since chairman Guo Shuqing took office in October.

Guo has said in the past that wild price swings on trading debuts are one of the major causes for unreasonable pricing of initial public offering shares.

IPO issuers and underwriters priced shares very high in 2010 and 2011, draining huge amounts out of the existing holdings while investors kept flocking to the new shares in the hope of making a killing, only to be left high and dry when they plunged after listing.

'The rule change at the Shenzhen exchange shows the regulator's efforts paid off,' said West China Securities trader Wei Wei.

'But investors haven't been fully educated yet.'

The Shenzhen exchange says most newly listed stocks since March 8 have made stable trading debuts, in a sign that the recent rule change is working.

The latest rule also stipulates that trading will be suspended until 2.57pm if debuting shares soar or plunge by more than 20 per cent from opening prices.

Before 2008, mainland IPO shares were forced to price artificially low by the regulators to facilitate fundraising. Buyers of the new shares normally booked more than 30 per cent first-day gains after listing debuts. The regulator loosened the controls on IPO pricing in 2009 but retail investors still continued to see new shares as safe bets, rushing to buy them despite their inflated prices.

Guo has pledged to fine-tune the IPO system to protect investors' interests.

410

Number of IPO deals that were completed on the two mainland stock exchanges last year