China suspends stock trade after a 7% plunge

A circuit breaker refers to measures put in place to avert panic in markets by putting temporary halts or a freeze in trading if, for instance, the index in question falls by a pre-determined level.

In China, the circuit breaker mechanism is linked to the benchmark CSI300 Index.

CSI300 Index tracks the largest 300 stocks listed in Shanghai and Shenzhen.

Under the new regulations, when the CSI300 index moves 5%, in either direction from the index's previous closing, trading is automatically halted for 15 minutes.

Meanwhile, a 7% rise or fall in the Index will prompt a suspension in trading for the rest of the day.

This new mechanism is believed to be another example of Beijing's attempts to control the stock market.

China's stock trade was halted in more than $7 trillion of equities, futures and options, putting the nation's new market circuit breakers to the test on their first day.

China's securities watchdog, the China Securities Regulatory Commission (CSRC), defended its use of circuit breaker on the countries' stock exchanges on Monday.

CSRC said that the mechanism protected investors and calmed markets.

According to investors, the circuit breaker designed to stem volatility, was making it worse.

Analysts opine that the trigger levels for the breaker, were too low and too close together to work effectively.

In China's volatile market, where a 5% change isn't uncommon, the low threshold level changes the way investors trade in a way that fires up selling pressure rather than cooling it.

China's stock market was suspended within half an hour of opening after falling 7 per cent.

The abrupt decline triggered so-called circuit breakers, which were implemented in a bid to tame the country's volatile markets.

This was the second halt this week, following the first one on Monday.

In both cases, an initial pause was quickly followed by the markets being shut down.