Analysis of the Impact of Shenzhen Stock Exchange Regulatory Measures on Market Liquidity and Investor Behavior

Based on the latest regulatory announcements of the Shenzhen Stock Exchange (SZSE) and academic research findings, I will conduct a systematic analysis from two dimensions: market liquidity and investor behavior.

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According to SZSE regulatory announcements from January 12 to 16, 2026 [1]:

Regulatory Category	Number	Main Scenarios
Abnormal Securities Trading Behaviors	387	Intraday price manipulation, false declarations, etc.
Verification of Major Matters of Listed Companies	15	-
Clues of Suspected Illegal and Violating Cases	5	Reported to the China Securities Regulatory Commission (CSRC)

According to the Shenzhen Stock Exchange Main Board Stock Abnormal Trading Real-Time Monitoring Rules [2], main abnormal trading behaviors include:

1. False Declarations
   : No intention to complete transactions, inducing or misleading other investors through behaviors such as submitting a large number of declarations and then canceling them
2. Price Manipulation (Pushing Up or Suppressing)
   : Large-scale, continuous, or dense declarations causing significant price fluctuations
3. Maintaining Price Limits (Up/Down)
   : Maintaining price limit levels through large-scale declarations
4. Self-Trading/Cross-Trading with Counterparties
   : Wash trading to create false trading volume
5. Abnormal Declaration Speed for Stocks with Severe Abnormal Fluctuations
   : A large number of declarations within a short period of time

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According to academic research, stock exchange regulation has a dual effect of

on market liquidity:

:

• Trading suspension measures directly interrupt transactions, reducing market liquidity [3]
• After resumption, trading volume often abnormally surges and price volatility intensifies [3]
• Trading suspension due to abnormal fluctuations reduces price discovery efficiency (Liao Jingchi et al., 2009) [4]

:

• Suppressing market manipulation helps restore a fair trading environment
• Reduces distortion of price signals caused by noise trading
• Improves market depth and price quality

According to the research Study on the Impact of Abnormal Fluctuation Trading Suspensions on Stock Price Volatility and Liquidity by Hu Ting, Hui Kai, and Peng Hongfeng (2017) [4]:

Indicator	Direction of Impact	Mechanism Explanation
Trading Volume	Significantly increases after resumption	Trading backlog caused by concentrated release of information
Volatility	Significantly increases after resumption	Adjustment during price rebalancing process
Liquidity	Interrupted during suspension	Liquidity disruption caused by transaction suspension
Price Discovery Efficiency	Reduced	Deprives traders of the opportunity to learn from continuous trading

According to SZSE announcements [1], *ST Chengchang was suspended for verification due to severe abnormal stock price fluctuations, and continued to hit the daily limit after resumption. Some investors were subject to trading suspension measures.

This case reflects:

• During suspension
  : Liquidity is completely interrupted, and investors cannot trade
• Initial resumption period
  : The daily limit prevents sell orders from being executed, essentially restricting liquidity
• Abnormal trading behaviors
  : Suspending trading for relevant investors further reduces market participants

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Based on regulatory practices and academic research, strengthened regulation by stock exchanges has the following impacts on investor behavior:

• Cooling Off Effect
  : Trading suspension provides investors with more time to evaluate information, alleviating excessive panic (Corwin and Lipson, 2000; Abad and Pascual, 2013) [4]
• Suppresses speculative arbitrage and insider trading
• Prompts investors to fully and rationally evaluate relevant information

Investor Type	Behavioral Changes
Institutional Investors	Strengthen compliance awareness, reduce abnormal large-scale declarations
Individual Investors	Cautiously participate in high-volatility stocks, avoid following speculative trends
Abnormal Traders	Converge or shift trading strategies

• Remain vigilant against stocks with severe abnormal fluctuations
• Pay attention to risk warning announcements of listed companies
• Re-evaluate the risk-return ratio of trading strategies

According to the Learning Through Trading model [4], regulation may also have the following negative effects:

1. Loss of information learning opportunities
   : Trading suspension deprives traders of the opportunity to learn from continuous trading
2. Increased transaction costs
   : Declining liquidity leads to wider bid-ask spreads
3. Distorted price signals
   : Price adjustments after resumption may deviate from true value

The SZSE has taken self-regulatory measures against 387 cases of abnormal trading behaviors [1], which reflects:

• Deterrent effect
  : The high-pressure regulatory posture makes potential violators converge
• Strategy shift
  : Some abnormal trading behaviors may shift to other targets or time periods
• Increased information asymmetry
  : Information dissemination channels are limited during suspension and verification

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According to SZSE announcements [1]:

• Reason for suspension
  : Severe abnormal stock price fluctuations
• Verification measures
  : The company suspended trading for verification and issued a risk warning announcement
• Performance after resumption
  : Continued to hit the daily limit
• Regulatory actions
  : Some investors were subject to self-regulatory measures such as trading suspension

Before suspension: Abnormal rise → Market attention → Regulatory intervention
   ↓
During suspension: Information verification → Risk warning → Investor reflection
   ↓
After resumption: Continued daily limit → Abnormal trading identification → Regulatory punishment

1. Verification of regulatory effectiveness
   : Even if the stock continues to hit the daily limit after resumption, regulators can still identify and punish abnormal trading behaviors
2. Investor protection mechanism
   : Suspending trading for abnormal investors helps maintain market fairness
3. Market risk education
   : Risk warning announcements have played a certain role in investor education

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According to academic research and market practice [4]:

Effect Type	Specific Performance
Risk Warning Effect	Trading suspension provides a risk buffer period for the market
Information Disclosure Effect	Verification prompts listed companies to disclose more information
Behavior Correction Effect	Violators receive substantive penalties
Market Purification Effect	Maintains trading order and protects compliant investors

1. Liquidity trade-off
   : Protecting investors may harm market liquidity
2. Price discovery efficiency
   : Information transmission is interrupted during suspension, reducing price discovery efficiency
3. Regulatory costs
   : High-frequency monitoring requires significant technical and human resources
4. Market efficiency loss
   : Frequent suspensions may affect the internationalization process of A-shares (Lin Shaowei, 2018) [4]

Based on research conclusions, the following policy optimization directions are proposed:

• Adopt hierarchical responses to abnormal fluctuations of different risk levels
• Reduce unnecessary routine suspensions to improve market efficiency

• Improve the real-time monitoring system to early warn of abnormal behaviors
• Strengthen investor education to improve the compliance awareness of market participants

• Shorten the suspension and verification time to reduce information asymmetry
• Strengthen the timeliness and completeness of information disclosure by listed companies

• Introduce a cooling-off period system to replace some suspension measures
• Establish an investor compensation mechanism to balance regulatory costs

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Strengthening regulation of abnormal trading by stock exchanges has

on A-share market liquidity and investor behavior:

:

• Short-term: Liquidity contraction (transaction interruption due to suspension)
• Long-term: Increased market depth and improved price quality

:

• More rational decision-making and enhanced compliance awareness
• Improved risk awareness and standardized trading behaviors
• Some investors adjust their strategies or exit the market

:

• Seek a balance between investor protection and market efficiency
• Promote differentiated and precise regulation
• Reduce institutional frictions and improve market operation efficiency

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[1] Renmin Caixun. SZSE: Took self-regulatory measures against 387 cases of abnormal securities trading behaviors this week. Eastmoney.com, January 16, 2026. (https://finance.eastmoney.com/a/202601163622098514.html)

[2] Shenzhen Stock Exchange. Shenzhen Stock Exchange Main Board Stock Abnormal Trading Real-Time Monitoring Rules. (http://docs.static.szse.cn/www/lawrules/rule/stock/trade/W020230217570611262391.pdf)

[3] Liao Jingchi, Li Ping, Zeng Yong. An Empirical Study on the Implementation Effect of the Trading Suspension System in China’s Stock Market. Management World, 2009(2): 36-48.

[4] Hu Ting, Hui Kai, Peng Hongfeng. Study on the Impact of Abnormal Fluctuation Trading Suspensions on Stock Price Volatility and Liquidity: Evidence from a Natural Experiment of Canceling Abnormal Fluctuation Trading Suspensions in China. Journal of Financial Research, 2017(9): 146-160.