China exchanges widen price limits to 10% in rule overhaul

China's three stock exchanges will scrap the 5% daily price cap on risk-warning stocks from July 6, the biggest overhaul of trading rules in years as regulators seek to improve pricing efficiency.

"The widening of price limits for risk-warning stocks aligns them with the broader market, reducing structural distortions that have long plagued these securities," said a Shanghai-based capital markets researcher, who spoke on condition of anonymity because they are not authorized to comment publicly.

The Shanghai Stock Exchange will also shift its fund products — including ETFs, LOFs and REITs — to a closing call auction during the final three minutes of trading, replacing the continuous auction model previously used. After-hours fixed-price trading, previously available only for STAR Market stocks, will be extended to all Shanghai-listed A-shares and ETFs. The Shenzhen Stock Exchange is introducing a market maker system on ChiNext and expanding after-hours fixed-price trading from ChiNext to all A-shares and ETFs. The Beijing Stock Exchange is launching after-hours fixed-price trading for the first time.

The changes, announced April 24 and taking effect July 6, represent the most significant modernization of China's market microstructure since the STAR Market's introduction in 2019. For the roughly 50 stocks currently flagged with risk warnings — companies facing delisting risk or other material issues — the wider band means daily swings could double, potentially increasing both liquidity and volatility. The uniform closing auction for funds may reduce end-of-day price manipulation, a persistent concern for ETF investors.

The reforms address a long-standing inconsistency in China's equity market architecture. Risk-warning stocks, designated for companies with operational or disclosure problems, had been subject to a 5% daily limit since the system's creation, creating a two-tier pricing regime within the main board. Bringing them to 10% eliminates what market participants had criticized as an artificial discount on liquidity.

The Shenzhen exchange's introduction of market makers on ChiNext marks a structural shift for China's Nasdaq-style board, which has struggled with thinning liquidity in smaller names. Market makers will be required to maintain continuous two-sided quotes, a mechanism that has improved depth on the STAR Market since its launch.

For institutional investors, the expansion of after-hours fixed-price trading is the most consequential change. The mechanism allows traders to submit orders between 9:30 and 11:30 and 13:00 to 15:30, with execution at the day's closing price between 15:05 and 15:30 on a time-priority basis. This gives asset managers and foreign investors a reliable window to execute large block trades without moving prices during regular hours.

The Beijing Stock Exchange, China's newest venue launched in 2021, is introducing after-hours fixed-price trading for the first time as part of its efforts to deepen market functionality for small and medium-sized enterprises.

The rule changes come as Chinese regulators balance the competing goals of market liberalization and stability. The CSI 300 Index has traded in a narrow range over recent months, with average daily turnover declining from pandemic-era peaks. By standardizing trading mechanisms across exchanges, regulators are laying the groundwork for greater foreign participation — though the immediate impact on risk-warning stocks, many of which face genuine solvency concerns, remains uncertain. Investors should treat the wider price band as a risk increase, not a quality upgrade.

This article is for informational purposes only and does not constitute investment advice.