The Impact Of China's Block Trading On Stock Prices

Block trading refers to securities trading that the amount of securities traded is much higher than ordinary transactions or reaches the minimum trading requirement.The main body of trading is usually a large shareholder or institutional investor holding a large number of securities.As the core content of Financial Market Microstructure Theory,block trading mechanism supplements the traditional pricing theory that equilibrium pricing depend on supply and demand,and proposes that the mechanism of stock trading also affects the pricing of assets.Block trading system has made up for the shortcomings of the common transaction mechanism.Since non-tradable shares reform,Chinese stock market ushered in the era of full circulation,market participants' demand for large transactions is growing and higher requirements have been put forward for stock market liquidity.Since the scale of block trading is so large,selling on the secondary market can not only leads to the fluctuation of the stock market,but also leads to losses of investors.In this context,China tried out block trading system in 2002 and continue to improve and supple the content.However,due to the unique ‘split share' policy,China's block trading market has become the channel of gap reduction for large shareholders in recent years.From one hand,it distorts the intention of block trading,major shareholders profiteering through insider information or price manipulation,which damages the interests of small and medium investors.From another hand,it makes the ordinary investors affected by the information transfer effect and lead to irrational trading on the stock,which is not conducive to the stability of the stock market.According to this situation,China Securities Regulatory Commission issued new regulation of reduction on May 2017,which limit illegal block trading.This paper will make a summary of domestic block trading to further study of China's block trading system.The key point of this paper is to analyze the impact of block trading on the stock price of secondary market through the method of event study,and to use multiple linear regression method to consider the impact of different factors on the price impact of block trading.Through statistics and empirical results,the following conclusions have been drawn: In recent two years,a large proportion of block trading have been traded at discounted prices.Besides,after the regulation on 2017,the discount rate decreased significantly,transaction size of block trading market as long as discount rate decreased and the proportion of premium trading increased.Blocktrading has a significant impact on the secondary market share price,and different block trading motives have asymmetric price impact.Based on the above analysis,this paper proposes that in order to prevent illegal reduction of holdings,it is necessary to further improve the block trading transaction mechanism,strengthen market supervision,and advice to investors on ethics and legal norms.