China to restrict trading halts in boost to chances for MSCI inclusion

Investors look at computer screens showing stock information at a brokerage house in Shanghai, on May 26, 2015.
Investors look at computer screens showing stock information at a brokerage house in Shanghai, on May 26, 2015. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China's stock exchanges published rules restricting trading halts in a move that raises the odds of the country's stocks being included in MSCI Inc.'s global benchmark indexes.

The rules are aimed at curbing arbitrary suspensions in Chinese stocks, known as A shares, the Shanghai and Shenzhen stock exchanges said in separate statements. Halts will be capped at three months for major asset restructuring and one month during private placements, according to the statements.

China's exchanges allowed trading halts that shut down half the stock market as officials struggled to stop a US$5 trillion (S$6.8 trillion) selloff last summer. MSCI said in March a decision to include yuan-denominated shares in its index will depend in part on regulators implementing changes so that widespread suspensions can't happen again.

"This will definitely a good development and will enhance the possibility of A shares being included in MSCI indexes," said Shen Zhengyang, Shanghai based analyst with Northeast Securities Co. "It shows that the regulator is willing to integrate the domestic stock market with international equity markets. Stock suspensions used to be a mess, and funds couldn't trade some stocks even if they were willing to buy. Now, with the regulations, stock trading liquidity will be improved."

A Bloomberg poll of strategists and fund managers found that 16 of the 23 surveyed named stock suspensions as a main obstacle to China's inclusion in MSCI's indexes. Capital controls, government intervention, stock beneficiary ownership and cross-border investment quotas were other common concerns ahead of MSCI's decision in June, the survey showed.