Daily price fluctuation limit

Purpose of easing restrictions

In order to reflect the demands of the market, and to be in line with international systems, the Financial Supervisory Commission announced that the price variation limit will be increased from 7% to 10% on June 1st, 2015. Account collateral maintenance ratio of margin trading has been adjusted to 130% since May 4th, 2015.

The current 7% price variation limit has been in place for many years. There are no price variation limits in major markets in Europe and the United States. Even in new markets such as Malaysia, Thailand, and Shanghai, the price variation limits are set at 10%-30%. Stock prices are nominally decided by company value and the prices acknowledged by buyers and sellers. As the current market has matured, many products, such as warrants, have not been limited by a 7% price variation, and for newly listed common stocks in their first 5 days of listing and foreign ETFs, there are no price variation limits. Besides, investors may invest abroad, or by sub-brokerages through domestic securities firms, buy and sell foreign securities with lax price variation limits of their own accord.

The increase of the price variation limit to 10% will facilitate stock price responsiveness and improve market efficiency, and can be considered a measure to reflect the demands market, to increase returns in the market, and to be in line with international systems.

 

Content of new rules and corresponding measures

Under the current transaction system, many parameters are modeled on the 7% price variation limit. In addition to the increase of the price variation limit to 10% for stocks traded during the general trading period, other products and transaction methods will also be simultaneously adjusted. The corresponding adjusted measures are divided into three categories including "modestly adjusted connected items relevant to price variation limit," "risk control enhancing measures" and "marketing stability maintaining measures"; and explained and summarized as follows.

Modestly adjusted connected items relevant to price variation limit

  • Price variation limits of all products are adjusted at the same time.
  • Price variation limits for odd lot trading and block trading are increased from 7% to 10%.
  • Maximum tender offer price for securities finance enterprises is increased from 7%-15% to 10%-20%.

Risk control enhancing measures

  • Cash collateral for settlement-driven securities borrowing is increased from 114% to 120%.
  • Account collateral maintenance ratio for margin trading is increased from 120% to 130%
  • Initial collateral ratio and collateral maintenance ratio for securities borrowing and lending handled by securities firms and securities finance enterprises is 140%, and 120% for general investors. When customers are professional institutional investors, such ratios will be negotiated with securities firms, and are not restricted by the limits.
  • Collateral value maintenance ratio of the T+5 securities borrowing and lending business is adjusted from 100%-125% to 100%-130%.
  • Collateral value maintenance ratio of Half-year securities borrowing and lending business is increased from 120% to 130%.

Marketing stability maintaining measures

  • Threshold of the intraday volatility interruption system remains at 3.5%.
  • Threshold to temporarily suspend market opening and closing remains at 3.5%.
  • Floor price for auction and ordinary reverse auction remains at 15%.
  • Cash collateral for competitive bid transactions remains at 120% of the bid securities price.
  • Maximum unit price of competitive bid transactions in margin trading remains at 7% and maximum unit price of negotiated transactions remains at 10%.
  • Lending fee rate for covering shortfalls in securities deliverable in day trading remains at 7% without change.
  • Cash collateral maintenance ratio for settlement-driven securities borrowing remains at no less than 107%, and maximum self-determined lending fee remains at 7%.

 

Note:The above documents have been translated by the Linguitronics Co., Ltd. The English translation is for reference only. In case of any discrepancy between the English version and the Chinese version, the Chinese version shall prevail.