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Q&A on Circuit Breakers
2015-12-04

1. Which products will be affected by the circuit breakers mechanism in terms of trading and other businesses?

When a circuit breaker is triggered, the auction trading of stocks and their relevant products will all be halted, while other businesses such as new share issuance, right issue and voting can be applied as normal. If the trading halt continues till15:00, block trading of relevant securities will not be conducted on that day.

However, specific products that will be halted and relevant businesses influenced differ slightly since the exchanges adopt different IT systems. Particularly, the Shanghai Stock Exchange (SSE) will halt the auction trading of stocks and relevant products, including A shares, B shares, funds (except for gold ETFs, money market funds, and bond ETFs), convertible corporate bonds and exchangeable corporate bonds. As to securities lending of refinancing, if the trading halt ends before 15:00, the order submission, matching and execution, and return of securities will be conducted as normal; if the trading halt lasts to 15:00, no refinancing-related lending or borrowing order will be accepted after the circuit breaker kicks in, but the orders accepted before that will be matched and executed. And the securities that should have been returned on the day will be returned on the next trading day, which references to the practice when a trading suspension occurs. 

In addition to the securities products that will be affected by SSE’s circuit breaker mechanism, the Shenzhen Stock Exchange (SZSE)’s mechanism also includes gold ETFs, money market funds and bond ETFs, but this difference will be eliminated after SZSE introduces a new IT system. With regard to securities lending of refinancing, if the trading halt ends before 15:00, the lending and returning of relevant securities will be conducted as normal; if the trading halt lasts to 15:00, the refinancing-related lending of relevant securities will not be conducted on that day, and the securities that should have been returned on the day will be returned on the next trading day, which references to the practice when a trading halt occurs. 

China Financial Futures Exchange (CFFEX) will halt the trading of all equity index futures products (CSI 300, CSI 500, and SSE 50 index futures), but China government bond futures will be traded as normal. 

Please refer to the exchanges’ announcements for specifics.

2. How will the trading be resumed after a circuit breaker?

For SSE and SZSE, when a circuit breaker ends before 15:00, trading will resumed with a call auction to match and execute accepted orders. For CFFEX, the market will be resumed with a call auction during the last 3 minutes of the circuit breaker, and  orders submitted during the call auction will be matched immediately. After the call auction and order matching, continuous trading will be resumed. . 

3. Can investors submit or cancel orders during a circuit breaker?

The three exchanges have different policies. For SSE, if a circuit breaker ends before 15:00, orders can be submitted and cancelled during the circuit breaker; if it lasts to 15:00, orders can only be cancelled during that period. For SZSE, investors can submit and cancel their orders during the circuit breaker, regardless of when it ends. For CFFEX, when the CSI 300 Index hits the 5% threshold, relevant contracts will enter into a 12-minute circuit breaker, during which trading will be halted and no orders can be submitted or cancelled; after that, a 3-minute call auction follows when orders can be submitted and cancelled. When the CSI 300 Index reaches the 7% threshold or when relevant contracts hit the 5% threshold within the last 15 minutes of trading, the trading of relevant contracts will be halted and no orders can be submitted or cancelled for the remainder of the day. Besides, if the circuit breaker spans the mid-day break, all three exchanges follow the current mid-day closure arrangement that no investor can submit or cancel orders during the closure.

4. Will the reference execution price and trading volume be revealed during a circuit breaker?

During a circuit breaker and the following call auction, all three exchanges will not reveal the virtual reference prices or virtual matched or unmatched volumes.

5. Will the purchase and redemption of funds be affected when a circuit breaker is triggered?

Please refer to the announcements of relevant fund managers.

6. How will the circuit breakers impact Shanghai-Hong Kong Stock Connect?

On April 10, 2014, SSE and HKEX jointly announced the "home market" rules, that is, "the trading and settlement activities should comply with the regulations and rules of the market where those activities occur." Accordingly, the following arrangements are made for Shanghai Stock Connect. Northbound trading adopts the circuit breakers of the mainland market. When the circuit breaker is triggered on the A share market, trading of the A share market from both mainland and northbound investors will be stopped. Northbound investors should also comply with mainland rules on circuit breakers when submitting or cancelling orders. In contrast, Hong Kong Stock Connect will not be affected when a circuit breaker is triggered on the A share market.

7. What are the special accommodations that the circuit breaker mechanism makes for equity index futures contracts on their delivery days?

At present, the settlement price of China’s equity index futures is calculated as the arithmetic average price of the underlying index during the last two hours of the delivery day. 

To ensure normal delivery of equity index futures, the circuit breaker system will be suspended from 13:00 on the delivery day of equity index futures. Specifically, either the system will be suspended from 13:00 to 15:00, or the trading halted by a circuit breaker in the morning session will be resumed from 13:00 at the latest.

8. Why is the trading time for equity index futures contracts adjusted?

CFFEX adjusts the opening and closing time for equity index futures according to that of the underlying stock market. That is, the call auction for equity index futures is from 09:25 to 09:30 on each trading day and the continuous trading is from 09:30 to 11:30 and from 13:00 to 15:00. The adjustment mainly aims to make the trading time for equity index futures the same as that of the underlying stock market.

9. What are the changes to the limit up/ limit down of equity index futures contracts after the circuit breaker mechanism is introduced?

The limit up/ limit down – limit on maximum daily price fluctuation – of an equity index futures contract has been adjusted from ±10% to ±7% of its previous settlement price, while the limit up/ limit down on the last trading day remains ±20% of its previous settlement price. When the CSI 300 Index rises or falls by less than 5% from the previous close, the price fluctuation limit of an equity index futures contract is ±5% of its previous settlement price; when the Index rises or falls by 5% or more for the first time on a day, the contract will enter into a circuit breaker, and the corresponding upper or lower limit for its maximum daily price fluctuation will take effect upon resumption of the trading.

10. How to calculate the settlement price of an equity index futures contract when a circuit breaker is triggered?

Daily settlement price refers to the volume-weighted average price of a certain contract during a particular period. If a circuit breaker, call auction, or trading halt occurs during this period, the time horizon should be calculated from an earlier time to make up for the time elapsed during the circuit breaker, call auction, or trading suspension.

11. Are there any other issues related to circuit breakers that investors should pay attention to or learn about?

Investors should pay attention to the following arrangements of the circuit breakers. First, when a circuit breaker is triggered during an opening auction, trading will be halted from 09:30 and on. Second, on non-delivery days of equity index futures contracts, a trading halt in the morning session may be carried forward to the afternoon. But the time of mid-day break will not be counted. Third, if a halt continues to 15:00 when the market closes and the trading is still not resumed, the closing price of the halted stock will be the weighted average price of all transactions during the  minute before the last transaction (included) of the day or, if no trading occurs on that day, its previous closing price. Fourth, when a circuit breaker is triggered during a closing auction from 14:57 to 15:00, SZSE will not halt the trading. Fifth, during a circuit breaker, the trading of any securities that has been suspended will only be resumed after the circuit breaker ends.

When a circuit breaker is triggered, the exchanges will announce the time of trading halt and resumption on their websites. Investors should keep themselves informed of the latest website information to get well prepared.