Trad­ing cap end un­likely in short term

China Daily - - BUSINESS - By WANG YANFEI wangyan­[email protected]­nadaily.com.cn

While re­mov­ing the trad­ing cap on the limit on how much a stock can gain on its trad­ing de­but adds some pos­i­tive signs to fur­ther re­forms of China’s cap­i­tal mar­ket, the move is not likely to take place in the short term as the Chi­nese main­land stock mar­ket is not yet fully ma­ture.

Yang De­long, chief econ­o­mist with Qian­hai Open Source Fund Man­age­ment, said re­mov­ing the max­i­mum per­mis­si­ble limit on the first day of trad­ing is nec­es­sary and will be­come a sig­nif­i­cant step for­ward in the mar­ket re­form of the IPO pric­ing scheme and al­le­vi­ate the sig­nif­i­cant fluc­tu­a­tion of stock prices.

“The cur­rent limit only works on the first trad­ing day and yet does not help to re­flect a rea­son­able priceearn­ings ra­tio after­ward — shares of­ten climbed too quickly days after com­pa­nies made their de­but,” he said.

The re­marks came after a se­nior of­fi­cial with the na­tion’s top se­cu­ri­ties reg­u­la­tor dis­cussed such a move.

“We should study and con­sider the pos­si­bil­ity of re­mov­ing the first day trad­ing cap for new stocks, be­cause pric­ing re­stric­tions of such a kind can­not ac­cu­rately re­flect the price of the shares with low trad­ing vol­umes in the first cou­ple of days,” said Fang Xing­hai, deputy head of China’s Se­cu­ri­ties Reg­u­la­tory Com­mis­sion, dur­ing a fo­rum held over the week­end.

The rule came into force in 2014. The limit is set to pre­vent spec­u­la­tive be­hav­ior and yet did not help much as spec­u­la­tors could mo­bi­lize the stock prices to rise to un­rea­son­able high lev­els us­ing a small amount of cap­i­tal, dis­turb­ing mar­ket liq­uid­ity.

Some an­a­lysts said they ex­pected more re­form steps were needed be­fore re­mov­ing the trad­ing limit.

Song Qinghui, an in­de­pen­dent econ­o­mist, said a sud­den move to re­move the cap would cause mar­ket in­sta­bil­ity at the time when the mar­ket is dom­i­nated by re­tail in­vestors and lacks suf­fi­cient reg­u­la­tions for in­for­ma­tion dis­clo­sure.

“More ef­forts to im­prove mar­ket reg­u­la­tion are needed be­fore tak­ing the step to re­move the trad­ing cap,” he said.

Echo­ing his re­marks, Qin Pei­jing, a strate­gist with Citi Se­cu­ri­ties, said the cur­rent lim­i­ta­tion re­mains a key pro­tec­tive mea­sure for re­tail in­vestors.

The sky­rock­et­ing of stock prices on the first trad­ing day has to do with dis­torted pric­ing schemes, he said.

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