Hai Hai Chau Understands The Three Weaknesses Of The Fusing Mechanism

On Monday and Tuesday, the stock market collapsed again.

On Monday, the Shanghai Composite Index fell 85.43 points, or 2.67%, and the two cities closed to 1500 stocks, reappearing the tragic situation of 1000 shares. Tuesday, the Shanghai Composite Index dropped 109.63 points, or 3.52%, two cities closed down more than 700 stocks, while the more than 9% stocks fell more than 1000.

In the case of Zhou Xiaochuan, governor of the central bank, said that "the stock market adjustment has been roughly in place", the stock market has plummeted again, which is not only embarrassing to Zhou Xiaochuan, but also a heavy blow to investors who have caught the bottom.

For this reason, there is a big investor who asks: is there not a fusing mechanism? How can it collapse? Of course, some investors say that if the fusing mechanism can be launched earlier, it will be fine.

In fact, all of the above statements do not understand the cause of the fusing mechanism.

It can be said that the fusing mechanism can not prevent the stock market from plummeting.

Actually this Monday and Tuesday

The slump has clearly exposed the weakness of the fusing mechanism.

Even if the stock market really introduced a fusing mechanism, and faced with the collapse of the stock market on Monday and Tuesday, the fusing mechanism was equally powerless.

This can be seen as a contribution of the stock market crash on Monday and Tuesday to the market.

It is precisely based on the three weaknesses of the fusing mechanism. Therefore, it is of no practical significance to introduce a pure sense of fusing mechanism to stabilize the stock market. The key is to maintain relevant stability measures.

Otherwise, the introduction of the fusing mechanism has made a useless effort for the Chinese stock market.

Of course, the first thing to understand is that the introduction of the fusing mechanism is still in the stage of soliciting opinions and has not yet been officially launched.

According to the notice issued by the Shanghai Stock Exchange, Shenzhen Stock Exchange and CICC in September 7th this year, the public consultation on the relevant provisions of index melting, the deadline for public consultation is September 21st.

So the fusing mechanism has not been pushed out yet.

And the collapse of the stock market on Monday and Tuesday shows another fact that even if the fusing mechanism is pushed out, the fusing mechanism will be unable to cope with the collapse of the stock market again.

Taking Monday's market as an example, the stock market of Shanghai and Shenzhen two cities is close to 1500, which is a sharp drop.

Nonetheless, the collapse did not trigger the threshold of fusing provided by the fusing mechanism.

According to the joint notification spirit of the three exchanges, the fusion mechanism will use the Shanghai and Shenzhen 300 index as the benchmark index for the index to fuse, set the 5%, 7%, two index fusion threshold and fuse all the losses. At the same time, it stipulates that when the 5% fuse threshold is set, the paction will be suspended for 30 minutes, triggering the threshold of 7% melting, and suspending the paction to the closing market.

And from this Monday's situation, although the two cities

The number reached nearly 1500, but the Shanghai and Shenzhen 300 index, which is the benchmark index of the fusing mechanism, dropped by only 1.97% on the day. The biggest drop in the intraday market was only 4.77%, which did not touch the threshold of 5%.

Tuesday's situation is similar to that. The Shanghai and Shenzhen 300 index dropped 4.55% in the day's intraday market, and failed to reach the threshold of 5%.

That is to say, although the stock market reappears on the stock market this Monday, the CSI 300 index has not even touched the fusing threshold of 5%, and even the opportunity to suspend trading for 30 minutes is not available.

What is the practical significance of suspending the 30 minute trading for investors? I am afraid it can only further cause panic in the market.

It is also for this reason that in the context of public consultation on the FX mechanism on the three exchanges, the stock market has again seen a sharp downward trend, which is a sufficient demonstration of the weakness of the fusing mechanism.

This weakness is manifested in at least three aspects.

First, the fusing mechanism is the fusion of the benchmark index, that is, the Shanghai and Shenzhen 300 index, rather than the melting of individual stocks.

As long as the CSI 300 index did not touch the threshold of melting, the decline of stocks would be larger, even if the 1000 shares were down, and the two thousand shares would be down.

Secondly,

The problem of distortion.

As mentioned in the previous article, the fusing mechanism is an exponential melting rather than a fuse of stocks.

In this case, whether the benchmark index can accurately reflect the trend of the market is very important.

But an important issue is that the CSI 300 index, as a benchmark index, can not really reflect the trend of the A share market.

On the one hand, the Shanghai and Shenzhen 300 index is mainly blue chips and large cap stocks, and the reaction is relatively slow. On the other hand, the Shanghai and Shenzhen 300 index is easy to distort under the promotion or protection of the main funds to the heavyweight stocks.

For example, on Monday, the stock market fell by 1000 shares, while the Shanghai and Shenzhen 300 index fell by only 1.97%. The benchmark index deviated from the real trend of the stock market.

Thirdly, the function of fusing mechanism is very small.

Although the trigger threshold is not easy, in fact, even if the trigger is triggered, the fusing mechanism has little effect.

For example, according to regulations, the 5% fuse threshold is triggered to suspend trading for 30 minutes, triggering 7% melting threshold and suspending trading to the closing market.

What is the significance of such a 30 minute suspension or early closing of the market to avoid a stock market decline? For the former, it will even cause further panic in the market. For the latter, which day does the stock market have no closing market? But after a night, even after the management's midnight stability, does the stock market fall or not?