IN its latest bid to prevent a potential supply glut, the Shanghai Stock Exchange has urged brokers to actively participate in block trading of previously non-tradable stocks in listed firms.
The bourse has also encouraged qualified institutional investors to apply for licenses to trade on the off-market block trading platform, and said it will resume vetting new applications soon.
The mechanisms, including price consultation and auctions to the block trading scheme, will be introduced to facilitate its operation, according to a statement released by the exchange over the weekend.
"The block trading system can help to form a reasonable market price for previously non-tradable stocks. It also works out very fast," said Dai Ming, an analyst with Kingsun Investment Management Co.
China's stock regulator last week issued rules to require big shareholders to move to a block trading platform if they hope to sell more than 1 percent of a listed firm's total shares within a month.
The edict came after a flood of previously locked-up mainland shares started to float freely this year, fanning worries among regulators and investors over a capital crunch.
The benchmark Shanghai Composite Index has dropped nearly 50 percent from its peak in October last year, partly due to the investor concerns over the excessive new supply of previously non-tradable shares.
To bolster investor confidence, the regulators issued rules for the block trading system on April 20. The rules helped to lift the indices instantly during the morning session on Monday last week.
According to the statement, combined turnover of non-tradable share disposal on the Shanghai bourse amounted to 687 million yuan (US$98.1 million) last week, showing a "good response" to the new arrangement.
The biggest shares unlocked through the system in a single deal accounted for 2.31 percent of the total in an unnamed listed company.
The Shanghai Stock Exchange said it expects the system will play a more important role in future trading as it provides convenience at a lower cost.