China unveils stock market risk controls, IPO reforms expected soon

BEIJING (Reuters) - China on Friday announced circuit-breaker mechanisms to prevent systemic risk in case of sharp stock-market falls, and it appears close to pushing ahead long-awaited reforms for initial public offerings.

The circuit-breaking rules for all Chinese exchanges were announced by the Shanghai Stock Exchange and will take effect on Jan. 1. Sources told Reuters that plans for IPO reforms will be rolled out as early as next week.

Deng Ge, a spokesman for China Securities Regulatory Commission (CSRC), told a briefing on Friday introducing the circuit breaker mechanism will "provide a cooling period when there are sharp fluctuations in the market".

That in turn "will help maintain market stability and market orders and protect investors' rights and interests and help promote stable and health development of the capital market in the long term," he said.

China's moves highlight rising confidence in Beijing that it can move to tweak market structure without destabilising its main indexes, which have gained around 25 percent since a market crash that began in June bottomed out in August.

The initiatives reflect both liberalisation and tightening at the same time.

Resuming a move toward converting the IPO market to a registration system instead of an approval system would address long-standing distortions in pricing and also eliminate a source of official corruption.

IPOs were frozen over the summer as Beijing tried to stabilise crashing stock markets - which some blamed on an IPO glut that sapped market liquidity - but they were recently resumed.

The sources did not have details on what the plan would contain, only that its publication is imminent.

The establishment of circuit breakers is part of ongoing efforts to suppress market volatility even at the cost of market vigour.

On the same day as the circuit breaker announcement, the Shanghai Futures Exchange said it will scrap a rule that allowed some kinds of high-frequency trading - a financial innovation many brokerages and funds had invested heavily in developing.

Also on Friday, regulators announced tweaks to futures market trading hours.

Last week, regulators cracked down on the use of over-the-counter derivatives swaps to fund stock trading, and markets crashed over 5 percent in a single day on Friday.

According to the new regulations, a 5 percent rise or fall in the CSI 300 benchmark index will result in a 15 minute trading suspension for all the country's equity indexes, while a 7 percent move up or down will trigger suspension of trade for the rest of the day.

If a 5 percent move occurs after 2:45 pm, it will also halt trade for the rest of the day.

The exchange said the plan has been approved by the CSRC.

(Reporting by China Monitoring Desk, the Shanghai Newsroom and Kevin Yao in Beijing; Writing by Pete Sweeney; Editing by Richard Borsuk)