Indian lessons that Chinese regulators have learnt the hard way

While India may have looked up to China on how to kick up growth in its economy in the past decade, the Chinese are now learning the tricks on how to regulate stock markets from their Indian counterparts.

Circuit breakers are now being introduced in the Chinese markets in a bid to control volatility and induce sanity in a market that has corrected nearly 40 percent from its peak hit in June on fears that a slowdown in the economy will impact stock prices. Investors have rushed to the exits in droves, causing a global pandemonium in equity markets.

Indian markets have a very long association with circuit filters in either direction for both stocks and indices. This prevents complete domination of a bull or a bear trend on an index or a stock. It is this regulation that the Chinese authorities are bringing into their markets.

Hence, from now on circuit breakers will come into operation on China['s main index -- the CSI 300 -- and its components once a particular percentage rise or fall has happened, according to the AFP. A stock and the index will cease to trade for 30 minutes if the price rises or falls by 5 percent. This temporary suspension will allow investors to focus on the fundamentals of the stock or the Index rather than follow the price action blindly.

If the price action exceeds 7 percent in either direction then trading will cease for the rest of the day, the Chinese authorities.

Circuit filters on indices on Indian bourses are divided into three ranges: 10 percent, 15 percent and 20 percent. These come into effect immediately if either the Sensex or the Nifty reach these levels

10 percent: Trading is halted for 45 minutes if the circuit is hit before 1 pm. Suspension is for 15 minutes if the circuit is hit between 1 pm and 230 pm. There is no halt in trading if the circuit is reached on or at 2:30 pm.

15 percent: Trading is halted for 75 minutes if the circuit is hit before 1 pm. The halt is for 45 minutes if the circuit is hit between 1 pm and 2 pm and if the circuit is reached on or before 2 pm, then the market is shuttered for the rest of the day.

20 percent: The Market is closed for the rest of the day.

(Image credits: wikipedia)