Shanghai bourse mulls over widening trading band

It may raise daily price limit to 20% and eventually scrap the band: Report


SHANGHAI - THE Shanghai Stock Exchange is mulling over a proposal to widen the daily trading band as a first step before eventually scrapping the limit altogether, state press reported yesterday.

Daily price volatility for Shanghai-listed firms would increase to 20 per cent, from the current limit of 10 per cent on either side of the opening bid, the Shanghai Securities News said, citing a study by the bourse.

Eventually the trading limit will be scrapped in favour of a 'circuit-breaker' or collar system, a measure commonly used by stock exchanges during large sell-offs to avert panic selling, the newspaper said.

The collar would be activated after a stock had fallen a certain percentage, usually in a prescribed amount of time, halting or restricting the security's trade temporarily.

The exchange is also considering allowing its biggest firms by market value to be traded an unlimited number of times. Investors are now allowed to buy and sell only once during a session.

The report came after China's central bank chief rejected concerns that recent volatility on Shanghai's stock market was connected to the health of the booming economy, which last expanded at a rate of 10.7 per cent.

The Shanghai Composite Index (SCI) tumbled by nearly 9 per cent on Feb 27 for its biggest single-day decline in 10 years, sparking a global rout which lasted for several days.

In a further step, the bourse may introduce securities lending to member firms of its two blue-chip indexes, which track the biggest 50 and the biggest 180 firms by market value.

The Shanghai and Shenzhen stock exchanges adopted the 10-per cent daily limit in late 1996 to curb heated trading after an order from the China Securities Regulatory Commission.

The exchanges themselves have no right to decide the limits.

China's stock market began a bull run last year after a four-year depression. The SCI jumped 130 per cent last year alone.

AGENCE FRANCE-PRESSE, REUTERS