A-share stock trading "abnormal fluctuation" standards should be unified

Why does the difference in standard deviations for abnormal fluctuations in A-shares violate the principle of fairness?

Announcements of abnormal stock price fluctuations are a common form of disclosure in the market. When the closing prices of stocks listed on the Shanghai and Shenzhen main boards deviate by a cumulative ±20% within three consecutive trading days, it is recognized as an abnormal fluctuation, and the relevant listed companies are required to disclose an abnormal fluctuation announcement on the next trading day.

The main purposes of requiring listed companies to disclose abnormal fluctuation announcements are twofold. First, to increase transparency through information disclosure. For example, what caused the stock price to rise? When releasing such announcements, companies need to verify factors affecting stock price movements. Second, to serve as a risk warning. Each time a company discloses an abnormal fluctuation, it reminds investors to pay attention to trading risks, make rational decisions, and invest cautiously.

Undoubtedly, the original intention of the exchanges requiring companies to disclose abnormal fluctuation announcements is good. However, in practice, most of these disclosures are often unhelpful. On one hand, they are mostly standardized, format-driven disclosures with little substantive content, such as statements that the company and major shareholders have no undisclosed material information. Some even rehash previously disclosed information without real substance.

On the other hand, these announcements do not effectively serve as risk warnings. A deviation of 20% does not necessarily indicate investment risk, especially for stocks that are in the early stages of an upward trend. Compared to stocks on the ChiNext or STAR Market, a 20% deviation is merely a limit-up move, and compared to stocks on the Beijing Stock Exchange (BSE), it may not even reach a limit-up. A 20% deviation over three days on the main board is not considered a significant “abnormality.”

To truly make these announcements meaningful and effective as risk warnings, the standards for abnormal fluctuations in the A-share market should be unified and further tightened. For example, setting the standard for “abnormal fluctuation” as a cumulative ±40% deviation in closing prices over five trading days, which can seamlessly align with the BSE’s standards.

For the A-share market, unifying the standards for abnormal fluctuations is necessary. Currently, the main board’s standard of ±20% deviation differs from the ChiNext, STAR Market, and BSE, which have standards of ±30% and ±40%, respectively. This discrepancy is unfair to main board stocks and violates the principles of “openness, fairness, and justice” stipulated by the Securities Law.

Moreover, such differentiated standards are also unreasonable. Market consensus suggests that the investment risk of BSE stocks is higher than that of ChiNext and STAR Market, which are higher than the main board. Why then is the main board’s “abnormal fluctuation” standard stricter, while BSE’s is more lenient?

The proposal to unify the “abnormal fluctuation” standard to a ±40% deviation over five trading days is partly because the BSE already applies this standard. Considering price fluctuation limits, extending the period to five days makes it easier for main board stocks to reach this threshold. If limited to three days, it would be difficult for stocks to hit a ±40% deviation within that timeframe.

Additionally, adopting the ±40% standard ensures that the “abnormal fluctuation” announcement truly serves as a risk warning. For many listed companies, a 20% deviation is insufficient to indicate investment risk, but a 40% deviation warrants serious attention. Under such circumstances, the announcement can effectively alert investors to potential risks.

Furthermore, unifying the standard to a five-day period with a ±40% deviation can reduce the release of unnecessary information, decreasing visual pollution for investors. Currently, A-share listed companies issue numerous daily disclosures, many of which are trivial, including minor deviation announcements at 20%. Raising the threshold to 40% can cut such disclosures by more than half, improving the quality of information disclosure.

Author’s note: These are personal opinions and for reference only.