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Jan 06, 2016

China securities regulator likely to extend ban on sales of stock by major shareholders

Government resumes market intervention to prop up stocks and currency

China’s securities regulator will extend a six-month ban on stock sales by major investors after the country’s main stock indexes began 2016 with rapid declines spurred by data indicating a sustained slowdown in economic growth, according to various media sources.

The China Securities Regulatory Commission will extend a rule created during extreme volatility last summer that prohibits owners of more than 5 percent of a company’s stock from selling shares until it creates new permanent rules governing such sales, according to unidentified sources cited by Bloomberg News, the Financial Times and others.

The likely extension follows a 7 percent plunge in China’s blue chip CSI300 stock index on Monday, the first trading day of the year, which triggered a circuit breaker and ended trading for the day. The drop came after the Chinese yuan weakened and data showed that Chinese manufacturing likely slowed in December.

The ban on stock sales by major shareholders was created as a temporary measure in July 2015 after pressure on the yuan, data indicating a slowing economy and other factors spurred extreme volatility, cutting the price of many stocks in half. The ban was set to expire at the end of this week, adding to ongoing pressure on share prices.

After Monday’s stock market decline, China’s government resumed a level of intervention that was common last summer, propping up the yuan in currency markets and buying stocks locally, according to unidentified sources cited by Bloomberg News.

Government officials also told the country’s exchanges to call listed companies and tell them that it would extend the ban on stock sales by major shareholders, Bloomberg reports. The government further verbally encouraged major shareholders to issue public statements committing to not sell their holdings for extended periods, the news agency reports.