04-21-2008 11:47

China's benchmark stock index opened up almost 7 percent on Monday after getting a much-needed boost by financial authorities. The securities regulator has issued rules to limit sales of previously non-tradable equities held by big investors in listed firms.

The securities regulator has issued rules to limit sales of previously non-tradable equities held by big investors in listed firms.

The securities regulator has issued rules
to limit sales of previously non-tradable 
equities held by big investors in listed 

The China Securities Regulatory Commission said in a statement late Sunday that any sale of non-tradable shares over the course of a month that represents more than one percent of a firm's total equity will have to go through a separate trading system. Such shares cannot be released in the 30 days before the release of a firm's annual or semi-annual report.

The mechanism also requires equity sellers to reach specific arrangements with buyers on a deal-by-deal basis, which won't affect trading and stock prices on the secondary market.

The regulator said the move is set to counter selling pressure on the public market and help mitigate investors' worries over the impact of share disposals on stock prices. Analysts say the measure will shore up the stock market.

Yin Guohong, Securities Analyst of China Orient Asset Management Corp. said "The move is an improvement in the non-tradable shares policy. The price discussion mechanism to dispose of such shares provides a fairer platform for both sellers and buyers. It also reduces potential risks in share trading. The new rules will greatly reduce the impact of non-tradable share disposals on stock prices in the A-share market. The market will rebound strongly in the short term."

China's main stock index has plunged by nearly 50 percent from its all-time high in October. A concern that's been hanging over the market in recent months is the potential impact of the release of huge amounts of shares. These shares are being released to the market, now that lock-up periods following firms' completion of share structure reforms have expired.

In October alone, 67 billion US dollars worth of formerly non-tradable shares poured into the market.

The CSRC has already taken emergency measures, including revving up efforts to approve new equity funds and delaying the pace of approving IPOs. But investor sentiment has yet to fully recover, leading to lingering weakness over the past few months. The CSRC said the new rules will also help Chinese capital markets face increasingly uncertain global economic conditions.


Editor:Xiong Qu