China takes the biggest steps yet to prop up its flailing stock market

• China's securities regulators are prohibiting major institutional investors from reducing equity holdings at the open and close during trading days.
• The ban also applies to certain quantitative hedge funds and brokerages.

Major institutional investors in China are no longer allowed to sell stocks at the open or close of market trading on a given day.

Under this order, investors are not permitted to sell more shares than they buy during the first and last 30 minutes of trading, unnamed sources familiar with the matter told Bloomberg.

It's the latest example of tightened trading restrictions from the Chinese government as it attempts to backstop the nation's $8.6 trillion stock market. The CSI 300 Index recently hit a five-year low in early February.

Meanwhile, newly appointed Chairman Wu Qing, who leads the China Securities Regulatory Commission, has formed a task force with the nation's stock exchanges to oversee short-selling activities and caution companies who benefit from such trades.

In addition to a struggling stock market, China has been dealing with real estate challenges, deflation, and demographic headwinds over the past year. Despite authorities ramping up curbs on bearish wagers and state-backed buying in the markets, they're still facing investors dampening market confidence.

On top of the trading restrictions, certain brokerages have been instructed to retrieve stock loans extended to clients for short-selling purposes. Certain quantitative hedge funds also remain banned from placing concentrated sell orders and reducing equity positions in their leveraged market-neutral funds — known as Direct Market Access, which was suspended in early February, Bloomberg reported.

China's local media outlet, Securities Journal, reported on Tuesday that the securities watchdog is considering measures to tighten initial public offering approvals, encourage dividend payouts, and crack down on financial fraud. Additionally, it aims to expedite approvals for equity funds and attract more medium-to-long-term investment vehicles into the stock market.

Benchmark indices in Hong Kong and China rallied on the news. Hong Kong's Hang Seng Index is up 1.57% higher as of Wednesday's intraday trading, while the blue-chip CSI 300 rose 1.35%.