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China introduced new stock trading rules yesterday in its two bourses of Shanghai and Shenzhen to help curb price manipulation and better protect small investors.
Unveiled three months ago, the new rules are the first comprehensive elaboration on trading principles and market participants' rights and obligations since the major 1993 revision.
In what analysts say is a major improvement, investors are now not allowed to sell hard-currency denominated B shares until the day after they are bought, or the "T+1" mode.
Investors used to be able to sell their B-share holdings the very day they were bought, or "T+0".
"The old rule strengthened speculative activity," said Zhou Ling, a manager at Haitong Securities, "and the new rule will certainly contribute to market stability."
Regulators said rules concerning trading and listing of B shares were lagging behind those for domestic A shares, which are off-limits to foreign investors. A shares are already trading under the "T+1" pattern.
In a sign of market unification, the Shanghai Stock Exchange adopted a closing price system its Shenzhen counterpart has been using, dropping its long-term practice of taking the last-deal price of a stock as its closing price.
Both bourses now use the weighted average of prices in all transactions of a stock made in the last minute of the trading day.
By adding more weight to the closing prices, the shift is seen as helpful in curbing the manipulation of technical charts by institutional investors in the Shanghai bourse, insiders claim.
"Institutional speculators have been misleading small investors by manipulating closing prices, and, therefore, influencing opening prices of the next day," Zhou said. "It is now much harder to do."
Heavy turnover of end-of-the-day deals prevailed the young market before a 10 per cent daily price limit was imposed a few years ago.
Analysts say the new trading rules - featuring less differences between the two bourses and between A and B shares - also pave the way for the introduction of a unified index for both bourses.
This is seen as a precursor to the debut of China's stock index futures, which are widely expected to help investors ward off risks in times of market downturns.
(China Daily December 5, 2001)
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