Arab Today, arab today shutting markets to stem panic often the wrong medicine
Last Updated : GMT 17:16:10
Arab Today, arab today
Arab Today, arab today

Shutting markets to stem panic: Often the wrong medicine

Arab Today, arab today

Arab Today, arab today Shutting markets to stem panic: Often the wrong medicine

An electronic board showing stock movements is seen at a private trading firm
Paris - AFP

Simply shutting down markets can be a tempting option to halt panic selling, but it's tantamount to breaking the thermometer to cure the fever, analysts say.

Rather than cooling flaring investor tempers, trading curbs can even fuel a rush to the exits as sellers hurry to offload stock while they can -- as China has this week discovered to its cost.

Analysts said authorities should use pauses in trading to actively soothe investor nerves, a strategy that China failed to implement during this week's trading fiasco.

After having its new trading "circuit breaker" tripped twice in the first four days it was in place, Chinese regulators backtracked on Thursday and suspended the suspensions, saying the were causing more harm than good.

Circuit breakers are pauses in trading or a shutdown for the trading day when share prices fall by a certain percentage, and their aim is to limit market volatility.

After plunges on the Shanghai and Shenzhen exchanges in August, which dragged down stocks across the globe wiping off trillions in valuations, Chinese regulators decided to introduce circuit breakers from January 1.

But the circuit breaker was triggered on the first day it was in force, on Monday, and then again on Thursday, when share prices tumbled 7 percent, provoking questions about its effectiveness.

"After weighing advantages and disadvantages, currently the negative effect is bigger than the positive one," the China Securities Regulatory Commission (CSRC) said in a statement.

"Therefore, in order to maintain market stability, CSRC has decided to suspend the circuit breaker mechanism."

- Circuit breakers counter-productive -

Analysts said Beijing's introduction of the circuit breaker this week had proved counter-productive, with investor fears of being unable to sell unwanted stocks outweighing any reassurance over market stability.

Circuit breakers are nearly universal on Western exchanges, but Christopher Dembik, an economist at Saxo Banque, said emerging markets differ from developed markets.

"It is possible to close the markets if measures are promptly put into place to reassure investors, otherwise its counter-productive," said Christopher Dembik, an economist at Saxo Banque.

"The major problem in China is that the market is still immature. You have a myriad of individual investors susceptible to panic selling and market shutdowns that are not always accompanied by measures that could calm trading at the reopening," he said.

The Chinese regulators had put into place a 15-minute trading halt when share indices fall by 5 percent, and closing for the day if the threshold of 7 percent is breached.

On Thursday, the Shanghai and Shenzhen exchanges were open for less than 15 minutes of trading overall. After the 15 minute trading suspension, it only took one minute for the slump to deeping to 7 percent and the exchange close for the day.

"The problem with two-stage circuit breakers is that triggering the first leads to triggering the second," said Jean-Louis Mourier, an economist at the brokerage Aurel BGC.

"Investors who didn't sell their shares fast enough rush to do so after trading resumes," he said.

For comparison, the NY Stock Exchange has 15-minute suspensions at drops of 7 and 13 percent the broad S&P 500 index with closing of trading at 20 percent.

In the West they are generally seen as being effective, such with the closing of Wall Street after the September 11 attacks in 2001.

"The oft-cited French example is the election of the Socialist Francois Mitterrand as president in 1981," said Jean-Pierre Pinatton, head of the supervisory board at the Oddo & Cie bank.

"The exchange took three days to open its doors, but it was much sounder to let investors digest the news," he said.

- 'Information is key' -

On the Paris stock exchange trading in a share quoted on the main CAC 40 index is suspended if it climbs or falls more than 10 percent during the session.

Only when 80 percent of the shares on the CAC 40 are suspended does the calculation of the index suspended, and the last time this happened in 2008.

"We have an array of protective measures that have been elaborated with regulators based upon experience," said Fabrice Peresse, who heads of monitoring of trading at Euronext, the operator of the Paris, Brussels, Amsterdam and Lisbon stock exchanges.

Pinatton said "suspensions should be as short of possible, because the longer they are the greater the risk they aggravate the panic."

But beyond the particularities of the circuit breakers, authorities face the challenge of restoring calm before trading resumes.

"Information is key," said Pinatton, because "the fundamental objective of a suspension is to protect savers."

Thus authorities need to take steps to ensure investors "have the elements they need to take informed decisions."

 

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

Arab Today, arab today shutting markets to stem panic often the wrong medicine Arab Today, arab today shutting markets to stem panic often the wrong medicine

 



Arab Today, arab today
Arab Today, arab today Fadi explains secrets of  Nancy Ajram's newlook

GMT 18:23 2017 Friday ,24 February

Fadi explains secrets of  Nancy Ajram's newlook
Arab Today, arab today Messi visit will contribute in tourism

GMT 14:04 2017 Friday ,24 February

Messi visit will contribute in tourism
Arab Today, arab today Expresses Algerian history by woody figures

GMT 13:26 2017 Friday ,24 February

Expresses Algerian history by woody figures
Arab Today, arab today Iran complying with nuclear deal

GMT 07:14 2017 Saturday ,25 February

Iran complying with nuclear deal
Arab Today, arab today Zainab al-Maliki reveals herTV presenter models

GMT 18:12 2017 Friday ,24 February

Zainab al-Maliki reveals herTV presenter models
View News in Arabic - Business: اقتصاد دولي
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today Reading therapy relieves mental disorders

GMT 15:39 2017 Friday ,24 February

Reading therapy relieves mental disorders
Arab Today, arab today UK appoints 1st Scotland Yard chief in 188 years

GMT 05:14 2017 Thursday ,23 February

UK appoints 1st Scotland Yard chief in 188 years
Arab Today, arab today Penguins in the age of dinos

GMT 11:44 2017 Saturday ,25 February

Penguins in the age of dinos
Arab Today, arab today Pluto's unruly moons

GMT 06:31 2015 Thursday ,04 June

Pluto's unruly moons
Arab Today, arab today 'Constructive' Vauxhall talk with union

GMT 08:54 2017 Saturday ,25 February

'Constructive' Vauxhall talk with union
Arab Today, arab today Tesla back into red but revenue grows

GMT 07:27 2017 Thursday ,23 February

Tesla back into red but revenue grows
Arab Today, arab today Actress Lobna Abdel Aziz proud of her career

GMT 06:08 2017 Thursday ,23 February

Actress Lobna Abdel Aziz proud of her career
Arab Today, arab today Ex-yoga missionary unleashes rage

GMT 12:16 2017 Thursday ,23 February

Ex-yoga missionary unleashes rage

GMT 07:36 2017 Wednesday ,22 February

Wafaa Amer is happy for Sherihan’s return

GMT 12:35 2017 Tuesday ,21 February

63-Year-Old Woman Delivers Baby

GMT 22:42 2017 Thursday ,23 February

Nasima Gamei revives heritage in jewelries

GMT 10:28 2017 Wednesday ,22 February

Milan laughs while Rome cries

GMT 20:33 2017 Friday ,17 February

To release new antiques collection

GMT 10:20 2017 Thursday ,23 February

Brazil's top diplomat resigns

GMT 09:59 2017 Monday ,20 February

Tourism shows signs of recovery

GMT 13:12 2015 Saturday ,09 May

Sheikh Sultan opens Sharjah Centre

GMT 20:02 2017 Tuesday ,21 February

Nohan Seyam designs beautiful accessories
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday