CHINA last night issued rules to restrict disposals of previously non-tradable equities held by big investors in listed firms, in its latest attempt aimed at stemming a constant stock-market slump.
Big shareholders who want to sell more than 1 percent of a listed firm's total shares within a month must conduct the disposal through a block trading system, the China Securities Regulatory Commission said in a statement.
The block trading mechanism 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 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, the CSRC said.
In 2005, China started a program to require all listed firms to convert their previously non-tradable shares, which were largely held by government institutions, into free-floating entities to help upgrade market fundamentals.
Big shareholders offered compensation in cash, stocks and warrants to minority shares in exchange for the right to trade their shares. But they were subject to lock-up periods up to three years as part of regulatory efforts to avoid a stock glut.
Industry data showed that about 3 trillion yuan (US$430 billion) in previously non-tradable shares would be allowed to float on the public market this year. Free-floating shares in Shanghai and Shenzhen markets totaled 6.63 trillion yuan as of last Friday.
China's key stock barometer in Shanghai has dropped by nearly a half from its October high as investors felt jitters about more austerity measures to tame inflation and an oversupply of stocks amid tight liquidity conditions.
The CSRC has already taken rescue measures including revving up efforts to approve new equity funds and delaying the pace of approving initial public offerings. However, analysts said investor sentiment has yet to fully recover. The Shanghai Composite Index slumped to a fresh one-year low of 3,094.67 on Friday.
"It may just be the beginning of a new round of regulatory stimulus policies," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "The market is likely to stage a short-term technical rebound thanks to the news but for the long term more positive news is needed to bolster confidence."
Yesterday's rules also stipulated that controlling shareholders can't dispose of their previously non-tradable stocks in the 30-day period before they unveil full-year or half-year financial reports.
Public investors should also now be informed in a timely manner by the exchanges if big shareholders who own a combined 5-percent stake in a listed firm decide to sell their stocks.