White Collar | Mainland exchanges can learn lessons from HK’s smooth circuit breaker launch
After January’s fiasco, Shanghai and Shenzhen cannot afford to delay the introduction of a sensible system to safeguard against volatile markets
Chinese investors are still feeling the bruises of the country’s January circuit breaker fiasco, and officials should certainly not be considering any relaunch without doing what their Hong Kong counterparts did before they launched its own system, on Monday – listen to what the market wants.
As an old Chinese saying goes: “Once bitten by a snake, expect to be frightened by a coiled up rope for many years.”
The meltdown in the Chinese stock markets triggered by the mainland’s poorly designed circuit breaker has certainly proved damaging, leading to a 22.7 per cent slump in Shanghai stocks since the start of the year, and a 29 per cent fall in Shenzhen.
The mainland circuit breaker was to have been triggered after the CSI300, which track large caps listed in Shanghai and Shenzhen, fell by 5 per cent. That would prompt the market to be suspended from trading for 15 minutes. It would be suspended for the rest of the trading day if the index fell to 7 per cent.
The short-lived circuit breaker cut trading to just half a day on its debut in Shanghai and Shenzhen on January 4, and the two markets traded for just 13 minutes before it was triggered again on January 7.
The Chinese regulator then scrapped the system, after having it in place just four days.