Shenzhen acts to curb speculative trading

PUBLISHED : Friday, 25 September, 2009, 12:00am
UPDATED : Friday, 25 September, 2009, 12:00am

The Shenzhen Stock Exchange introduced a new rule yesterday aimed at curbing rampant speculative trading on its soon-to-be-launched Nasdaq-style second board.

The bourse said in a statement a stock would be suspended from trading until 2.57pm, three minutes before closing, if its shares jumped or fell 80 per cent from the opening price on the first day of trading.

The announcement signalled regulators were increasingly worried about stability on the board for start-up firms, analysts said.

On the Shenzhen exchange, trading will be suspended for 30 minutes if a newly listed stock gains or loses more than 20 per cent from the opening price. The bourse will halt trading for another 30 minutes if the shares climb or plunge 50 per cent.

The China Securities Regulatory Commission is set to officially start the second board next month, giving the mainland's cash-hungry small firms access to stock market funds.

'It is for sure that many speculative funds will dart in and out of the small-cap stocks when they are listed,' said Essence Securities analyst Liu Jun. 'It will eventually come down to whether the watchdogs can control the risks.'

The new trading rule will make it harder for investors to speculate on the stocks during their trading debut on the growth market.

The morning session starts at 9.30am and ends at 11.30am. In the afternoon, the market opens between 1pm and 3pm. On the mainland, a stock can rise or fall by any amount on the first trading day but is subject to a 10 per cent daily cap from the next trading day.

Thousands of mainland investors were eager to bet on the growth market, believing they would strike it rich overnight amid the wild price swings, Liu said.

Small-cap stocks are the darlings of China's retail investors because it is easy to bid the price up and down.

On Sunday, Beijing allowed the first batch of firms due to list on the second board to begin their initial public offerings. The regulator was also fast-tracking approvals for new share offerings, planning to list dozens of start-ups together when the market was launched, a CSRC statement said.

An influx of fresh equity has also weighed down the volatile main board with the Shanghai Composite Index diving 17.8 per cent from this year's high in early August.

'The new trading rule will more or less dent buying interest on the second board,' said Shenyin Wanguo Securities analyst Li Xiaoxuan. 'But a flood of IPOs still siphoned funds off the existing holdings.'

The first batch of 10 firms set their flotation prices yesterday, with the average price-earnings ratio exceeding 55, compared with the average multiple of 36 by the companies listed on the main board this year.

Beijing Ultrapower Software will float 31.6 million shares at 58 yuan (HK$65.84) each, 68.8 times its earnings last year. The company's price-earnings ratio is the highest of the 10 firms, all of which will offer shares to the public today.