The Shanghai Stock Exchange is looking into widening the daily price band for blue chip companies, according to China Securities News, the exchange's official publication.

 

The newspaper said the exchange was also hoping to allow investors to buy and sell shares on the same day in a bid to boost trading and liquidity.

 

In addition, the exchange is drafting new rules on the introduction of margin trading, the buying and selling of stocks with borrowed funds provided by stock brokers.

 

While analysts expect margin trading to be introduced in the second half of this year, there is not yet any indication of a timetable for the other two market proposals.

 

However, analysts said the introduction of measures to increase market liquidity is just a matter of time given the near-completion of share reforms.

 

These involved converting non-tradable State-held shares into regularly traded equity and the lifting of a year-long ban on initial public offerings.

 

The exchange has proposed widening the daily price band the daily price limits within which the price of a security is allowed to rise or fall for the SSE 50 Index from the current 10 percent to 20 percent.

 

The change would be applied to the bourse's top 50 firms, whose management is more transparent and whose stock prices are more stable.

 

"Widening the price band to 20 percent would reduce the number of times the price limit is reached by over 90 percent," Liu Ti, of the exchange, was quoted as saying in China Securities News.

 

The move would attract more funds, especially from institutional investors, into blue chip stocks and boost the index as a whole, according to analysts.

 

"Increased liquidity for the 50 blue chip stocks would boost their market multiples, many of which are relatively low as compared to developed markets," said Wu Jianxiong, an analyst with Guotai Jun'an Securities.

 

Allowing investors to buy and sell stocks on the same day will provide investors with greater flexibility to take advantage of short-term swings in share prices, while margin trading will give them the leverage to play the market, said analysts.

 

Currently all stock trades on the mainland market are settled on the next business day following a transaction. Only stock warrants are allowed to be traded on the same day.

 

"Given the tremendous popularity of stock warrants, we could imagine what a big impact the proposed trading rule would have on the market," said Chen Li, an analyst with Shenyin Wanguo Securities.

 

Since the introduction of stock warrants in August last year, the combined turnover in Shanghai and Shenzhen has overtaken Hong Kong, making the Chinese mainland the biggest market for the investment instrument.

 

The latest trading indicates that the combined turnover in stock warrants on the China market now equals stock warrants traded everywhere else in the world put together.

 

However, the proposed same-day trading is expected to apply only to a selected number of stocks, said Chen.

 

The Shanghai bourse revealed these trading plans a day after it released its first-ever market quality report, which has provided the basis for further improvement, said the exchange official Liu.

 

(China Daily June 14, 2006)