The China Securities Regulatory Commission has issued a new rule on directors, supervisors and senior executives reducing their share holdings. This is a proactive measure for resetting the trade rules to avoid a further slump in the stock market.

Although it will take time to see the effects of the new rule, it is conducive to restoring people's faith in the workings of the stock market at least.

The big shareholders usually buy their holdings at low prices before the companies are listed and will look to reduce their holdings in pursuit of speculative returns. It is common practice for there to be some restrictive rules to rein in big shareholders selling their shares, so as to prevent them from manipulating information disclosure to create more favorable conditions for selling their shares.

It is a conventional rule that, to protect ordinary shareholders' interests, the big shareholders can only sell their shares to the block trade market, not the secondary market. But some big shareholders collude with third-party agencies, who buy their holdings in the block trade market and then sell the holdings to the secondary market. This kind of "bridge selling" easily evaded the old regulations. The new rule stipulates that a third-party agency cannot transfer a share purchase to the secondary market until six months later.

The commission's new rule aims to mend the loopholes in controlling these forms of insider trading.