He Qiang On the Perversion of Daily Price Limits: From Price Stabilization Tool to Mechanism for Institutional Manipulation

Special Topic: Strengthening the Defense Line for the Rights and Interests of Small and Medium Investors — Sina Finance 3.15 Investor Protection Forum

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On March 13, Sina Finance held the 3.15 Investor Protection Forum, with Professor He Qiang from the Central University of Finance and Economics School of Finance and Honorary Director of the Securities and Futures Research Institute delivering a keynote speech.

He Qiang pointed out that the original stock price stabilization and limit-up/limit-down system, designed to smooth out volatility, has now been distorted by some institutions into a tool for market manipulation. He detailed two typical manipulation techniques:

First is the “Door Closure Tactic”: after institutions complete their positions, they suddenly push the stock to the limit-up, using “door closure” to prevent retail investors from buying. They then continuously raise the stock to multiple limit-ups, creating panic buying. When the limit-up is lifted and retail investors rush in, the institutions sell off large amounts of shares, causing the stock price to plummet and trapping retail investors.

Second is the “False Breakout at Limit-Down”: institutions use large orders to push the stock down to the limit-down, creating panic and forcing retail investors to sell at a loss. After retail investors place sell orders at the limit-down price, the institutions cancel their orders and quickly raise the stock price, staging a “ground and sky” move, inflicting severe psychological damage on those selling at a loss.

He also specifically mentioned that the Beijing Stock Exchange sets the limit-up/limit-down at 30%, and some believe this can prevent manipulation. He Qiang countered that because the Beijing Stock Exchange has a small market cap, institutions can easily use small amounts of capital to hit the limit-up, and three consecutive limit-ups can double the stock price, increasing the risk of manipulation.

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Editor: Hao Xinyu