Shanghai and Shenzhen stock exchanges issued new rules yesterday regulating their member securities companies in a bid to ward off risks in stock trading.

The rules, which will come into effect on May 1, set limits to the varieties, methods, and scales of stock trading that securities dealers are allowed to conduct, preventing them from engaging in high-risk business beyond their capacity.

The securities companies are required to remind their clients of possible risks when being entrusted with abnormal dealings, according to these rules. In specific trading business, they must sign agreements with their clients on the duties to reveal possible investment risks.

These companies can also refuse commissions that are likely to seriously disorder the market and are urged to report such instances to the stock exchanges.

Meanwhile, senior managers of the securities companies can be recognized as "unsuitable candidates" for management positions in the business by the national securities watchdog once they receive disciplinary punishment for three times in their companies' irregular operations.

The new rules will replace previous provisional rules that have been in operation since 1998 and only apply to domestic securities companies with membership in the stock exchanges.

Under the new rules, the Shanghai Stock Exchange will no longer expand its membership, which now stands at 151, while the Shenzhen bourse, which has 175 member securities companies, will limit the total allowable number of members.

The new rules came at a time when talk of a bubble has been rife in the Chinese stock market, raising government and public concern.

The benchmark Shanghai Composite Index gained 130 percent last year and had jumped nearly 10 percent in January alone before a recent correction took it back almost to the point where it started the year.

Despite a bullish stock market, the government has warned investors of illegal securities companies, which usually involve swindling clients of funds with claims of high returns. On February 12, the State Council approved the China Securities Regulatory Commission to lead an inter-ministerial team aimed at cracking down on illegal securities business.

(Source: Xinhua News Agency February 26, 2007)