China has scrapped the ‘circuit breakers’ it introduced at the start of the week that intended to reduce market volatility, after two days of market closure.
The circuit breakers were introduced to minimise market losses and meant a 15 minute halt to trading after a 5 per cent fall in the market and a stop to the day’s trading following a 7 per cent fall.
However, markets were forced to close on Monday and Thursday this week after 7 per cent falls were recorded, with the stock exchange staying open just 870 seconds before the first trading halt on Thursday.
In a statement issued by the Shezhen and Shanghai stock exchanges they said the circuit breakers were being suspended to “maintain smooth operation of markets”.
The Financial Times reports that in a statement the China Securities Regulatory Commission said: “The circuit breaker mechanism is not the main reason for the market drop, but based on the experience of the two recent instances, it hasn’t achieved the expected effect, but rather produced a definite ‘magnetic effect’.”
Before the decision was announced Mark Dampier, head of investment research at Hargreaves Lansdown, said: “The system doesn’t work and until it is withdrawn or modified we can expect to see further use and perhaps shorter trading periods than we saw last night.
“The interference by the authorities is simply delaying the inevitable. The market needs to find its own level so we will see more volatility in global markets until it does.”