Chinese regulator suspends circuit breakers

China suspended its recently implemented circuit-breaker system Thursday, hours after trading in Chinese stocks was halted minutes into the session because of a plunge in prices.

The system also led to a trading halt on Monday amid selling, sparking a global sell-off in stocks. On Thursday, the circuit breaker kicked in after 29 minutes of trading, when the CSI300 plunged more than 7 per cent.

The China Securities Regulatory Commission has used the halts and other measures to control downward pressure amid volatility. However, some observers felt the system as designed could have increased investor jitters about the health of markets.

The Dow Jones industrial average fell more than 300 points in opening trade Thursday but regained some of those losses after China's announcement.

Suspending circuit breakers would effectively cut off one regulatory tool China has used to limit how far stocks can fall. Cutting off the halting mechanism is meant to "keep the markets stable," the Shanghai Stock Exchange said on its website.

Under the system, if an index rose or fell 5 per cent, trading was halted for 15 minutes. If it dropped by 7 per cent, trading stopped for the rest of the day.

Concerns exist that the limit for halting may not have been wide enough. For instance, the S&P 500 will only stop trading for the day in the United States if it plunges 20 per cent.

"They're just learning their way around the market and they set the circuit breakers too tight," said John Rutledge, chief investment strategist at Safanad, on CNBC's "Squawk Alley."

Circuit breakers were among multiple methods regulators have used to curb volatility. Last year, Chinese regulators limited the number of futures contracts traders could hold, potentially limiting their ability to hedge.

They also placed restrictions on sales by large shareholders last year. Those curbs will loosen in the coming days, and large shareholders will be allowed to sell a maximum of 1 per cent of company shares every three months.