China stock trading halted early after 7% plunge again | Hacker News Reader

China stock trading halted early after 7% plunge again

marketwatch.com

177 pointsausjke127 comments

A very successful Chinese entrepreneur once described Chinese economic policy to me in terms I will diplomatically paraphrase as the inexperienced leading the less experienced. His point was that China lacked the long history of economic mistakes, and economic success necessary to successfully manage complex economic systems at scale. The ups and down to come are necessary, but they will certainly carry the rest of the world in a contagion with them - and in that mistake I'm afraid the US is gaining experience as well.

this busted cycle is a bit different from others, the government is the _sole_ one pushed the stock up before it crashed(using its controlled media to pump up the stock with lots of promising articles over a few months), the stock index had been staying at around 2200 for quite a few years, then shot to ~4600 last year and now it's swinging back.

to justify this crash, quite a lot fund managers are now in prison, who became the scapegoat for the government--the real one initiated all this mess.

Reading your phrase "controlled media" made me think of the 200-some news articles telegraphing the recent Fed rate increase, months ahead of the actual event. Controlled or not, the Fed knows how to use the media to achieve the Fed's goals.

Believing the proposition that one can control something as complex as an economy requires a certain amount of arrogance and/or hubris, neither of which are in short supply in the States. But from one naïve American's perspective, the Chinese leadership act like it's their divine right of nature.

You have no idda how China controls media and press. Recent incident in Hong Kong revealed China abducted 5 bookstores staff because they publish book about political gossip of the communist party. Journalist and Newspaper were directly controlled by the Party in China. Media companies are required to have a Party Secretary in their board. Comparing that to Fed is vastly irrelevant.

"The Americans are so natural. Far superior to us,” - Joseph Goebbels [0]

The Yankee propaganda machine is smooth and suave so we hardly realize it exists. It makes the Chinese look heavy handed by comparison, and our Overton window is much wider than theirs. But don't confuse that suavity and width with the absence of propaganda.

[0] http://www.newyorker.com/magazine/2013/09/16/hitler-in-holly...

There's a difference between the government running a news outlet and the government actively shutting down other news outlets.

I don't think anyone is saying there isn't propaganda/spin/marketing in the US. But to compare it to Goebbels or China is irresponsible, unless you have some serious sources. China bullys reporters (Chinese and foreign) [1], refuses visas to foreign reporters of papers that publish things that contradict the party line [2], jails Chinese reporters that contradict whatever the Party wants at the moment [3], blocked nytimes.com ever since it published an expose of Hu Jintao's (the president of China at the time) financial affairs [4], has been bullying Hong Kong newspapers that do not tow Beijing's line despite a promise to not control Hong Kong until about 2046 [unfortunately, can't find sources on this, as it is a bit subtle, but, for example, the South China Morning Post was bought by Alibaba executive; think it's going to publish anything out of line?]

[1] http://www.poynter.org/2014/covering-china-for-foreign-and-d...

[2] https://cpj.org/blog/2015/03/how-china-uses-j-visas-to-punis...

[3] http://america.aljazeera.com/articles/2015/8/27/chinese-jour...

[4] http://www.nytimes.com/2012/10/26/world/asia/china-blocks-we...

I agree the comparison is taking it too far. But the US model is fascinating. E.g. consider newspapers wishing to be able to report from the White House. Want your journalist to be able to get a good seat? Want them to have a shot at asking questions? Then behave.

Want to get access to high ranking officials? Same thing.

Instead of throwing anyone in jail it's a matter of strangling them of access so competitors gets important information first or gets to be the ones askin their questions.

Occasionally it doesn't work. Like when a newspaper gets hold of something important enough to be willing to risk their access (such as the Snowden documents). But for tilting the day to day reporting of politics these methods have been honed to a level where they are remarkably effective.

The funny thing is that this situation has bred an altogether different sort of organisation - think Wikileaks and The Intercept. In these cases they don't have to play nice, since people will volunteer even juicier news/disclosures than would otherwise be available through playing nice with the press office.

If you were the president, would you be inclined to answer questions from a journalist that was consistently antagonistic?

An American reporter can freely be critical of the government. They can even publish Snowden documents, which put the government in a very bad light. Nobody even considers harassing them, let alone jailing them. (In fact, legally, they can't.) This fact is huge; it is an essential difference.

GP here. Note that I personally am not comparing American propaganda to Goebbels; rather, Goebbels himself is and I am quoting him. In that light, it's perhaps less ridiculous.

By choosing to quote him in this discussion you kind of are making that comparison.

"divine right of nature":

I think I finally figured out how the Communist Party deals with information control. They simply state whatever they wish were actually true as if it were true, and then bully, punish, jail, block or otherwise try to stamp out any other perspective.

So, they say "Taiwan is part of China" when it manifestly is not part of China, and they encourage an angry response to anyone who says it is not true. But other than national messaging, it seems like the State media actually does their own stories, because you often see it run a story which then gets deleted off the web site a couple hours or a day later, after the government decides what the message should be.

But Taiwan refers to itself as "The Republic of China" while China refers to itself as "The People's Republic of China".

From the outside looking in, China and Taiwan are merely part of a long running civil Cold War.

North Korea and South Korea are obviously different countries but they are both called the "Republic of Korea" (one with various adjectives tacked on).

I don't think you should read too much into names. Taiwan is neither internationally recognized as part of China nor does it function as part of China in any way.

I honestly don't get why they let it get so crazy? In what world would a gain at that rate be sustainable without a huge crash? The worst part is they executed the public awareness campaign which convinced the middle/lower class to fund this bump, Then, take significant loses during the correction. Why not take some action before it came to this if it was artificial?

this dangerous move could lead to instability, which is the worst thing the party expected to see, the only explanation, as once mentioned by a radio host, is most likely the current leaders have no idea what to do.

In the past 20~ years the leaders in China are graduated from the best engineer school in China, the current one is far from that, somehow he became overly confident and to some extent reckless, I feel that's one way to explain what are happening there nowadays, including this busted stock cycle.

It was a mistake of desperation. They had previously inflated a massive property bubble, both residential and commercial, that was in the process of exploding and severely damaging the economy. The stock market bubble they intentionally created, was meant to offset that event (perhaps both economically and psychologically). As the stock market bubble began, people shifted their capital from housing to stocks - many were relying on the perpetual upward movement to keep themselves solvent vs the losses in their real estate assets.

China is still a heavy-handed command economy in many ways. The Communist Party's reputation and 'people authority' is directly tied to the economy delivering continual material progress gains (which the party then takes a lot of credit for, with the downside being the implied responsibility if things go badly). The desperation stems from 2007-2009, when the global economy crashed, and ended their over-boom (some of it was fake, backed by highly leveraged consumers and a slightly cheap currency that had been pegged to an artificially cheap dollar). At that point, China made a decision to inflate bubbles rather than accept much slower growth. The real estate bubble bought them a couple of years before it turned back against them.

China is now eating through their capital reserves rapidly, while trying to prop up the most over-valued stock market on earth, and simultaneously dealing with a manufacturing sector that has been shrinking for five straight months (to go with the big bust in several specific segments like steel). They're trying to fight reality, when they should have instead learned from Japan's similar past mistakes in trying to prop up fake growth with bubbles (China is even making the same zombie corporation mistakes that Japan did).

How many politicians (elected or not is irrelevant) do you know of who make difficult long-term decisions, that they don't have to, when things are good?

The government pushing the stock market up seems a new thing under the present leadership (since 2012?) and kind of dumb like they don't understand markets. Having the stock market priced high doesn't make people richer in real assets although they may imagine their bits of paper worth more. On the other hand it can lead to real assets being misallocated to doomed but overpriced dot coms for example.

I mean isn't that what the US does?

No, they do exactly the opposite. They act to moderate the market. When markets are down they drop interest rates to stimulate investment, but when markets are booming they raise interest rates and limit the money supply to try and calm them down. Western economists and central bank leaders are very well aware of how damaging over inflated markets can be and one of their primary goals is to moderate the boom and bust cycle.

That's the narrative, yes, but given that the market has been bull for six+ years and the Fed only recently raised rates, and not by much (real rates may still be negative)... The evidence does not support your assertion

You provide zero evidence that the US stocks are overvalued (I'm not saying they aren't) so you should refrain from demanding evidence from others.

Furthermore, why do you think the FED should've raised raters earlier? Supporting the stock market is not their mandate and it is thus not directly relevant whether and how long has the current bull market lasted. A big market crash just a few years after 2008 (and 2011) would've certainly had a dampening effect on recovery so they might have felt justified in increasing the money supply. Inflation is running low, economic growth and labor markets were very weak for many years after the 2008 crash. They had pretty good reasons to be supportive.

The Fed's mandate is inflation and unemployment, so judging whether they should act based on stock prices reflects a misunderstanding of their goals.

Do you think the government buys and sells stick to manipulate prices? Perhaps the 90M traders lack sophistication so trade mostly on rumor.

Depends on the trader.

Most normal people buy and hold. (Personally I have a mix of bond and stock index funds)

But for a day trader, decent sized jump could be a problem. I don't have a ton of sympathy though since day trading is basically gambling.

A wealth effect.

An ill-sighted policy, but striving at a wealth effect. The housing market was already crashing in 2012, and gold was booming so much so it seemed like a peak. Wages were stagnant and had been for some time. So where to encourage people to have a feeling of generating wealth? A stagnant stock market.

I have a feeling the Chinese leadership, as a body that agrees on consensus, understand western economic and political history better than anywhere else in the world. They also have a sense of control over messages that get sent out by official media.

This combination led to a belief that nothing can go wrong when the 2 are put together: in this case a stampede to the stock market and quite a few savvy investors recognising this.

This search for a wealth effect reflects something much deeper, however: There is deep malaise in China's economy which is felt across the board, and there is a desperate desire to keep the ball that has rolled for the past 20 years to continue rolling.

So in other words - in the US, bankers fuck up and the government has to pay for it. In China, the government fucks up and bankers have to pay for it. A strange world we live in.

I guess I'll be moving to Iceland.

Why Iceland ? There the government fucked up as much as the bankers, and then used their power to make the bankers alone pay for it ...

Lots of people consider what happened there good because with our western view bankers never pay for their mistake and they do in iceland, blissfully ignoring the action from their government that triggered them and helped them get there.

Probably because it seems that I was misinformed about Iceland, believing what you say lots of people believe. Then again, it still looks like they're better. They at least jailed half of the responsible parties.

It is not my area of expertise and I wouldn't want to go much into it at the risk of misinforming (although there is a detailed wikipedia page which could be a decent starting point), but at the very least should be considered the fact that when Icelandic banks started being too big and other countries warned Iceland and refused to allow some acquisitions, their government went out of their way to guarantee all deposits in Icelandic banks, even of non Icelandic citizen. When things went wrong, they then went back of that promise, paid deposits to their citizen and ignored the others.

At their height, the Icelandic banks possessions was worth eleven times the GDP of Iceland, and were in part fueled by promise of their government to other countries, promise that they went back on the moment things went south.

Imagine if another country did that to yours, say a Chinese bank buy a bank where your country's citizens have deposits and then the chinese govenment reneg their promise and let creditors in your country either lose their money or be repaid by your own government, would you consider the chinese government "the good guys who stood up to bankers" ?

> On 6 October, the Icelandic legislature instituted an emergency law which enabled the Financial Supervisory Authority to take control over financial institutions and made domestic deposits in the banks priority claims. In the following days, new banks were founded to take over the domestic operations of Kaupthing, Landsbanki and Glitnir. The old banks were put into receivership and liquidation, resulting in losses for their shareholders and foreign creditors. Outside Iceland, more than half a million depositors lost access to their accounts in foreign branches of Icelandic banks. This led to the 2008–2013 Icesave dispute, that ended with a ESA ruling that Iceland was not obliged to repay Dutch and British depositors minimum deposit guarantees.

> In 2001, banks were deregulated in Iceland. This set the stage for banks to upload debts when foreign companies were accumulated.

> his inflation was exacerbated by the practice of the Central Bank of Iceland issuing liquidity loans to banks on the basis of newly issued, uncovered bonds effectively, printing money on demand.

> In response to the rise in prices – 14% in the twelve months to September 2008, compared with a target of 2.5% – the Central Bank of Iceland held interest rates high (15.5%). Such high interest rates, compared with 5.5% in the United Kingdom or 4% in the eurozone for example, encouraged overseas investors to hold deposits in Icelandic krónur, leading to monetary inflation: the Icelandic money supply (M3) grew 56.5% in the twelve months to September 2008, compared with 5.0% GDP growth

Again, not saying the bankers weren't responsible. They were. But I don't like the praise to how the icelandic government handled it because they were just as responsible and then turned around and beat their accomplice while trying to make themselves appear the good guys.

Thanks for the detailed explanation. I shall look into this story more before voicing my opinion on Iceland's actions the next time.

It's probably worth noting that the government which went out of their way to guarantee all deposits in Icelandic banks, even of non Icelandic citizen. When things went wrong, they then went back of that promise, paid deposits to their citizen and ignored the others all (?) resigned and many members up to and including the Prime Minster[1] were charged and convicted of offenses relating to their behavior before and during the crisis.

[1] https://en.wikipedia.org/wiki/Geir_Haarde

Well if it is so, it shows that in the U.S. the bankers have the power to fuck things up and the government has the money, while in China it is the opposite. I wonder if Chinese way could actually be closer to what should be expected from banks and governments.

In case of Chinese bankers, I didn't mean "pay for this" in the literal sense. To quote the comment I responded to,

> to justify this crash, quite a lot fund managers are now in prison, who became the scapegoat for the government--the real one initiated all this mess.

You're moving to the country that decided to turn itself into the world's largest hedge fund?

Who has a long history of any understanding of the voodoo that's economics. The whole idea of a Caplitalist economy is 500 years old. American leadership is what like 70 years old, since WWI. No one know what they are doing, they just have money and so that have the ability to coerce people to do work to generate more money. As long as people work and money is generated through sales, you can make any rules to keep the game in play.

Yes exactly. If the Federal Reserve knew what it's doing, it would have seen the Dotcom bubble, or the 2008 Financial Crisis coming.

As long as people work and money is generated through sales, you can make any rules to keep the game in play

I hope you would make this into a paper and dub it "The Calvinball Principle"

(ahh, memories: https://en.wikipedia.org/wiki/Calvin_and_Hobbes#Calvinball )

Western countries have a long history of economic mistakes that we continue to perpetrate as a matter of course.

All countries have a long history of economic mistakes, in fact. There's absolutely nothing special as it applies to the West.

See: Japan's recent 25 year rolling disaster. China had hundreds of years of economic mistakes prior to the last 40 years or so. Asia is littered with demonstrations in very bad economic governance over the last 50 years.

Japan and China are very different. I trust Japan. I know it's politically correct to think we're all alike, or well meaning. It just seems like every Chinese company, I have looked into, is beyond crooked.

I would still love to know what NQ Mobile Inc. does?

As a kid, we had a Japanese exchange student. I would trust her with my life. Japanese, and Chinese cultures are vastly different.

I know your talking about economic mistakes, but in my eyes, it's more than mistakes. If you have a horrid foundation, you can't expect a structure to rise, or hold it's own weight.

Let the strapping begin--hopefully from a recent college graduate.

"inexperienced leading the less experienced." hmm sounds about right when describing Wall Street and the Fed as well. There are definitely extremely knowledgable people running the show, but around them are people who when they see an easy way for a short term gain, they think economic policies can be bent.

just "gaining experience" in damaging the global economy through our own bad policy? I'd argue we've been doing that since Smoot-Hawley, or in the dying days of Bretton Woods ("the dollar is our currency, but your problem")...

Isn't there that old saying, "when the US sneezes, the world catches a cold"?

Canada definitely is!

:'(

They are not lacking experience. Communist believe in centralized control, not free market.

Same with the Bernie Sander folks.

breitbart is that way -->

Stopped trading about 30 minutes. China's stock market is a super large casino, childish, speculation, ignorance. https://medium.com/@Mfrbee/china-stock-trading-halted-early-...

They are entirely lacking experience. China's capital markets are very new. Most of it is still so new it's considered embryonic and barely functional. Mass population speculation on and ownership of stocks is entirely new. Large scale real estate ownership by the Chinese people is relatively new.

30 years ago none of this existed. That's the very definition of inexperienced in the fields we're talking about.

I mean for a new market it's going pretty well :) - their trading and exchange systems don't seem to be having issues

The Chinese "Communist" party is not in fact communist in the classical sense. They are mostly technocratic and pragmatic, and modern China has a market economy. Don't read too much into names.

This resonates with what a good Taiwannese friend explains to me, that the population is very immature compared to the rest of the world, hence the censorshipe issues being nesscary for example. The cultural revolution for example being complete immature and setting the entire country back 50s years, not to mention the destruction of heritage that took place. Quite insightful, and I'm sure it applies economically as well.

In what way are Chinese "immature"? I suppose you don't mean they're all bunch of children who hadn't adapted to the reality yet, because that is factually untrue. Could you elaboate on your intended meaning?

>contagion

Remember that the US has a huge trade deficit with China. That means we were that dependent on them purchasing our goods and services, upper management and tech, than they are on us. That means a collapsing Chinese economy will not effect the US as bad as some might think. The worst case scenario is the property values in the Bay Area will drop some which honestly won't be a bad thing.

We remain dependent on China for most manufactured goods, for the purchase of our debt, for workmanlike stewardship of its nuclear arsenal, for its mangement of North Korea, and to stave off a deflationary spiral. Our fates are intertwined.

The US has had many generations of freee market economy with lots of both good and bad experiences. Still, the Great Depression and the Great Recession happened.

I believe we have seen plenty of spectacular stock market crashes in the US as well.

The standard is not the absence of volatility, or black swan events. The standard is what steps are taken afterward. The US leads the world in financial transparency at the corporate and state levels. We have many mechanisms that imperfectly reinforce transparency and accountability. These are the lessons China must learn if prosperity and harmony are to be achieved.

> China lacked the long history of economic mistakes, and economic success necessary to successfully manage complex economic systems at scale.

Are there ANY complex economic systems that have been successfully "managed" at scale?

Depends on what you mean by 'managed'. We know centally managed economies spectacularly fail given enough time. We know that opaque financial entities implode. We din't yet know what the future holds for moderately regulated, mostly free market capitalism, except that the entire global economy has relied on it at great benefit the past 100 years or so. The fat lady has not yet sung.

Can someone explain to me my why stock markets have "circuit breakers" to stop trading when markets go DOWN by N% but not when they go up by N%? Isn't that kind of playing favorites to folks playing one side of the market vs. the other?

Yes.

> Isn't that kind of playing favorites to folks playing one side of the market vs. the other?

We also often see things like bans on shorting stocks. Again a bias to being long equities.

This certainly isn't a perfect answer, but for one, markets don't really do that. They climb steadily and drop quickly.

That's... an optimistic take on "markets."

The old stock market adage is "you take the stairs up, and the elevator down."

Just a guess, but maybe because people are more likely to "panic sell" than they are to "panic buy".

China's circuit breaker is actually bi-directional. NYSE is indeed uni-directional like you described.

[0] http://www.cnbc.com/2015/09/07/chinas-latest-step-to-curb-sh...

>Meanwhile, a 7 percent rise or fall in the CSI300 Index will prompt a trading halt in the Shanghai and Shenzhen stock exchanges for the rest of the day, the statement posted on the exchange's website said. Both circuit breakers will only be activated once a day.

Didn't realize that--neat!

> Both circuit breakers will only be activated once a day.

I'm not sure what this means, given that it already specified that either circuit breaker halts trading for the rest of the day...

"Both circuit breakers" refers to the 7% all-day halt circuit breaker and the 5% 30-minute halt circuit breaker introduced in the previous paragraph (which I omitted for brevity). A full quote would make more sense:

>The proposed mechanism will be tied to the benchmark CSI300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, where a move of 5 percent in either direction from the index's previous close will trigger a 30-minute trade suspension across the country's equity indexes if the move occurs before 2.30 pm local time. After that, a 5 percent move will freeze trading until the market close at 3.00 pm.

>Meanwhile, a 7 percent rise or fall in the CSI300 Index will prompt a trading halt in the Shanghai and Shenzhen stock exchanges for the rest of the day, the statement posted on the exchange's website said. Both circuit breakers will only be activated once a day.

The reason is that selloffs spread panic. If a market is crashing by 7% or more it can easily lead lots of other people to sell just for fear. This is not a problem for markets that go up.

Why is people selling a problem? For every seller, there is a buyer. (Or, that is, for every sale there is a buyer.)

If something serious is happening in the economy, it seems unfair to me to simply halt trading, forcing everyone who has stock to be stuck with exactly what they've got, leaving them unable to sell and other people unable to buy. If people want to trade their property, why prevent them?

The explanation usually offered by those instituting these circuit breakers is that they don't have any problem with people who want to trade at some price eventually trading at that price, they just don't want people to have to trade without thinking it through due to extreme time pressure.

For example, there might be a rumor (perhaps started by an unethical competitor or market manipulator) that Company X was just caught in some sort of scandal. Those who panic most and sell soonest might get a better price than those who take the time to find out the truth, providing a potentially serious financial motivation to panic. Panic, and rapidly falling prices on something large, can cause sales of other assets as a hedge against others selling assets as a hedge...and it can cascade out of all proportion to what is actually happening in the economy.

The idea of the circuit breaker is that it stops everyone from trading but doesn't stop the news or analysis. Let everyone catch up on the news--what's really going on in these companies and their markets--and then let people trade based on facts, not panic. After more is known, and known by all, those who still want to trade will be allowed to do so.

Whether it really works out that way in practice is a different question. A circuit breaker that doesn't stop trading long enough for anyone to learn anything beyond additional rumors might merely allow the panic more time to spread, but the above is the usual explanation given by those who make the policies.

Panic spreads faster than exuberance.

When you look at the history of commodities and equities trading you will see that a big chunk of the market can be held by people who don't feel they have enough visibility to understand why something is going down, and so when it goes down in an uncharacteristic way, they panic and join in the selling and that grows quickly. The "down" side is that people lose money from panic. But if the market goes up quickly people generally hold on to their stock waiting for it to go up still more, so there is no need to slow trading, it slows itself.

The apocryphal saying “financial markets are driven by two powerful emotions – greed and fear.” is fairly simple but it does capture the essence of the primary movers.

ChuckMcM has got it.

Only one of these generates "String up the manipulative bastards who stole all our money!" headlines.

If markets drop enough the losses could trigger a negative feedback loop where financial institutions automatically begin liquidating positions in order to obtain the liquid assets to cover their debts in case investors see the losses and decide to withdraw in a panic. This floods the market, driving prices down further, and potentially triggering even more automatic liquidation, leading into a death spiral.

Conversely, there is no mechanism that can push the market increasingly higher, other than hyperinflation or a collapse in, say, the bond market which might theoretically drive investors into equities. But if the bond market collapses, the world has much bigger fish to fry and the stock market will probably come down right afterwards.

Want to thank you for the great reply.

Do you have any evidence for either of these answers? They don't match with the reasoning for market circuit breakers I've read in the past. I also don't understand why a collapse in bond markets would cause an equity markets spike that could trigger an upside circuit breaker. Or, for that matter, why a down bond market would cause an equity market crash.

according to wikipedia, the chinese market circuit breakers operate on changes in both directions:

https://en.wikipedia.org/wiki/Trading_curb#China

"If the CSI 300 Index rises or falls by 5%..."

Also, when people have short positions in the equity markets they get margin calls and are forced to close out their positions by buying stock when the market rises. This would be a similar process that roymurdock mentioned but to the upside. It's called a "short squeeze."

https://en.wikipedia.org/wiki/Short_squeeze

The underlying logic is that capital would shift from bond to equity markets, and while that's perhaps a little oversimplified I think the point is still valid. A bond market crash would trigger a risk off move [1] in which safe haven assets such as gold, the dollar, and in fact government bonds would outperform while risk assets such as equities are generally sold.

[1] http://lexicon.ft.com/Term?term=risk-on,-risk-off

In theory, you are right. So the circuit breaker is uni-directional in NYSE and NASDAQ. It is bi-directional in China, though.

The upside circuit break has very practical implications. China's current stock market was started in 1990. The general public began to paying attention to stock market around 2000. From the historical point of view, both the stock market and the general public's understanding on it are still in early stage. So the attitude on stock market is very speculative. Coincidentally, the economy in China has been undergoing stunning growth during this period, which generates a huge amount of wealth. This furthers the stock market's speculative nature. As a result, the volatility could be very high. It was not uncommon to see some stocks undergo several +/-20% changes during a week, before the upside circuit breaker was established. Its primary purpose is to curb the speculation.

As a side note, a wrong picture is placed in the article. In China's stock market, red indicates positive changes, while green indicates negative changes. It is the opposite to those in USA.

Don't forget commodity futures limits [1]. I remember in 2011 when cotton was limit up for days in a row, with the market opening the next day and locking up immediately (and options showing a "synthetic" price much higher).

Limits are subtly different from circuit breakers in that trading can continue... within the limits.

[1] http://www.cftc.gov/industryoversight/marketsurveillance/spe...

I was under the impression that the Chinese stock market has a circuit breaker that applies in both directions. Not an expert but random googling does seem to match with this:

"when it goes up or down by 7%, it usually means that sharp volatility has taken place in the market, which is likely to face the extreme systemic risks. Therefore, the market needs more time to calm down so as to prevent the spreading panic from intensifying the market fluctuations."

http://english.sse.com.cn/aboutsse/news/c/c_20151207_4019977...

"Meanwhile, a 7 percent rise or fall in the CSI300 Index will prompt a trading halt in the Shanghai and Shenzhen stock exchanges for the rest of the day"

http://www.cnbc.com/2015/09/07/chinas-latest-step-to-curb-sh...

It applies in both directions, however it has only existed while the market was going down fast.

Also, I very much doubt China is going to start disappearing traders who make their stock market go up 5% like they're doing now :

http://www.ibtimes.co.uk/china-arrests-197-authorities-pin-b...

Stock prices have a floor but no ceiling. Just like we worry about accidentally dropping eggs, but not about accidentally throwing them infinitely high.

This is true in theory but not in practice. For example, NASDAQ OUCH, which is one of the most popular protocols for entering stock orders in the world, has a maximum price of 199,999. A stock trading at one dollar can go up by a factor of 1000, but only once. See http://www.nasdaqtrader.com/content/technicalsupport/specifi...

A more subtle ceiling is why companies split their stock: a huge price per share distorts the market. Imagine if Costco were the only place you could buy butter, but they sell it in five-pound packs. Individuals might not buy any.

There is

They are limited in both directions now. See LULD. And somebody please update the Wikipedia page for Trading Curb as I just read 13 replies here repeating incorrect information.

The futures markets have circuit breakers in both directions. They are called "limit up" days or "limit down" days. There are stories of commodity traders that got entirely wiped out when some futures were limit up or limit down for days or weeks, and that they couldn't exit their positions.

When I was trading corn and soy, I've seen a few limit up/down days myself, but thankfully never caught in them.

Several others have discussed some other relevant effects, which I agree with: - fear produces more violent market movement than greed - stocks have a natural minimum, but no natural maximum

I don't think anybody has mentioned another reason: stock markets are _naturally_ "long" rather than neutral. When companies issue public offerings (e.g. an IPO), they create shares of stock from "thin air"--that is, there is a buyer who ends up long (owns stock), but nobody ends up short. However, once stocks start trading on the secondary markets, every buyer is paired with a seller. So always, the sum of all long positions exceeds the sum of all short positions. On average, everybody is happy when the stock market goes up, and everybody is sad when the stock market goes down. So it makes sense to place a speed bump on the downside only.

Compare this to derivatives (futures, options) where there are no "public offerings", and every single trade is a buyer and seller paired. There is a net balance of long and short positions at all times. Consequently, many derivatives have limits in both directions. Note that some derivatives have no limits (whoa scary), and many equity index derivatives carry over the one-sided limit. S&P 500 futures, I believe, have two-sided limits outside of core US market hours, but only a downside limit once the stock market opens.

One of the main reasons is control. Each and every buyer can unilaterally make a decisions to sell their entire position at any moment. The overwhelming majority however do not have either the reserves or the credit to do the opposite and buy at the same magnitude.

i.e. if I have a $1 million dollar position, I have the power to try to sell $1 million dollars worth of stock, but I can only buy another $1 million dollars if I have that amount liquid in the bank or I have enough credit to borrow $1 million to double my position.

Upward movements are attenuated (or accelerated) by the quantity and velocity of credit available in the market.

I highly recommend listening to NPR's Planet Money podcast that talked about the Chinese stock market a few months ago.

http://www.npr.org/sections/money/2015/09/09/438948679/episo...

And various Economist articles:

http://www.economist.com/topics/chinese-economy

Shoddy Chinese-Made Stock Market Collapses

http://www.theonion.com/article/shoddy-chinese-made-stock-ma...

And on the "Not the onion" side we have Quartz:

http://qz.com/588386/chinas-new-stock-market-circuit-breaker...

TL;DR: If only China hadn't halted trading, everything would be fine!

It'll be interesting to see how North American markets will respond tomorrow.

Is there any indication that these wild swings are caused on purpose? I mean they did occur after the Chinese devalued their currency again, so did they not know that a downturn in the market was going to follow?

Are there any currencies maintaining their relationship with the US dollar? It seems like the USD is singularly levitating above all other currencies.

Major US indices futures are down about 1% and have been in this range for the last couple of hours.

Considering Shanghai is closed, it'd be reasonable to expect markets to trade around this range tomorrow barring any significant additional developments.

> Are there any currencies maintaining their relationship with the US dollar?

Over what time period? The Pound/Dollar pair is pretty stable historically. With the exception of recent intentional corrections the USD/CHF pair is usually stable (though I'm glad I was out of trading on that one particular day).

Lots of currencies have the problem that they act as proxies for the natural resources of the country in question. So they vary with high correlation with commodities prices (see CAD/AUD). In many ways the USD is the opposite of that, so it's not that surprising that lots of currencies fluctuate wildly around USD.

> Is there any indication that these wild swings are caused on purpose? I mean they did occur after the Chinese devalued their currency again, so did they not know that a downturn in the market was going to follow?

I am a Chinese and I heard two theories from my friends:

1. Today's swing is a response to North Korea's hydrogen bomb news. 2. The downturn in the market is deliberate so that China's pension fund, currently in massive deficit, can reap the gains by entering the market at its low point.

It also coincides with the end of a 6 month ban on selling shares from top holders as well as with growing concerns that China, despite the official numbers, is actually in a recession.

There is no lack of theories, but look at the insane market valuation growth last year and maybe calling it the burst of a speculative bubble is the simplest explanation.

> calling it the burst of a speculative bubble is the simplest explanation.

I do agree with that, but many people insist that it is not the truth. All kinds of theories have been invented since the collapse in July, all kinds of people have been jailed for "manipulating the market", and they still refuse the believe that the market is, just the market.

What does this mean for Bitcoin?

It's increasing Bitcoin popularity in China, I suspect. And 81% of Bitcoin exchange volume is already in CNY (average for last 30 days). I'm guessing that the price will stay in the 420-450 USD range.

You can't rely on the self-reported volume figures from Chinese bitcoin exchanges. They are zero fee exchanges so it's very easy to inflate volume and there are many indications that that is exactly what they do.

OK, thanks. I have heard that before, now that you say so. Are there any credible estimates of how inflated they are? Is there any way to check against the blockchain?

Also, what's the incentive for inflating volume? Promotion?

BTC/CNY instantly up 2% after the crash / circuit breaker just a few hours ago? Maybe it is just more speculation...

https://bter.com/trade/btc_cny

Bitcoin didn't explode in during any of the latest economic crashes (greece comes to mind). I don't see why this one should be any different.

0% interest rates (or even negative rates, in some countries) for saving fiat money means you're better off investing in stocks...

but enough years of pumping stocks, they crash...

So now that fiat and stocks are bad investments that leaves you with gold, silver, bitcoin, etc.

That's why bitcoin is back above $450 today.

This new rule is interesting: "The China Securities Regulatory Commission capped the size of stakes that major investors are allowed to sell at 1 per cent of a company's shares for three months effective Jan. 9"

Having implemented the A/B market for foreign ownership I'd have to guess this rule will be done post trade with a naughty stick.

Why do i get this feeling china seems to be constantly trying to stick a finger to block a leaking bucket and will soon run out of fingers?

Stopping downward spirals prematurel is a short term solution that will lead to larger downturns in the future. Referencing anti fragility

Hacker news worthy?

From the HN Guidelines:

> On-Topic: Anything that good hackers would find interesting. That includes more than hacking and startups. If you had to reduce it to a sentence, the answer might be: anything that gratifies one's intellectual curiosity.

Seems worthy, in my opinion.

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