Shanghai bourse says to open some ETFs to 'T+0' same-day trading

[SHANGHAI] The Shanghai Stock Exchange said on Friday that it will allow some exchange-traded funds (ETFs) to use "T+0" trading, meaning transactions will be started and completed on the same day.

The move is seen as a step towards letting shares and other products listed on the exchange eventually adopt the same one-day system, to increase trading activity.

Starting Jan 19, bond-based ETFs, money market ETFs, gold-related ETF and ETFs that cross Shanghai and overseas markets will use the same-day stock trading system, it said in a statement posted on its website.

The current "T+1" system, which still applies to the rest of the market, was originally implemented in 1995, shortly after massive speculation tripled the value of the main index in just two months.

By preventing investors from jumping in and out of positions in a single day, regulators hoped to discourage the sort of herd mentality investing behavior that could lead to a collapse.

Regulators followed up the 1995 rule by barring stocks from rising or falling more than 10 per cent on a single day, further containing momentum moves.

However, those restrictions backfired as regulators introduced innovations that allowed institutional investors to purchase index futures. That resulted in retail investors - who dominate Chinese stock market transactions - getting trapped in losing positions while institutions were able to cover bad bets through futures purchases.

In addition, the launch of the Shanghai-Hong Kong Stock Connect programme in November, which allows foreign investors directly trade in A-shares for the first time, has seen lacklustre uptake so far, with many blaming technical barriers such as the lack of a T+0 settlement for the lack of enthusiasm.

The exchange said the cross-market ETFs that track offshore stocks eligible for T+0 trade are Huanan (DAX), BP 550, NASDAQ100 and Hangseng CN .

REUTERS