AFTER watching a stock market collapse wipe out US$5 trillion of wealth in less than three months last year, Chinese authorities hatched a plan to stem the pain: circuit breakers that would be triggered by daily declines of 5 percent.

    The new system went into effect Jan. 4. It lasted all of four days. After two harrowing sessions — Monday and Thursday — that tripped the breaker repeatedly and convulsed global markets, officials suspended the rule, saying it was only exacerbating declines.

    The China Securities Regulatory Commission announced the suspension on its official microblog account Thursday night. The benchmark CSI 300 Index plunged 7.2 percent earlier in the day, triggering an automatic shutdown within 30 minutes of the open, as declines in the yuan eroded investor confidence in the world’s second-largest economy.

    The circuit breakers, which halt exchanges for 15 minutes after a 5 percent drop in the benchmark and for the rest of the day after a 7 percent retreat, have been criticized by analysts for deepening losses as investors scramble to exit positions before they’re blocked from selling.

    Regulators echoed those concerns upon suspending the mechanism, saying that it has a certain “magnet effect.” When the stock market “approaches the threshold, some investors trade ahead of it, accelerating the decline toward the trigger and deepening the selloff,” they said in a statement. “On balance, the current negative impact outweighs the positive effect.”

    The rout — the CSI 300 Index declined 12 percent last week and the yuan tumbled to five-year low — has radiated across global equity markets.

    While China’s economy is showing signs of stability after decelerating to its slowest annual pace since 1990, investors are concerned how deftly, or ineptly, the authorities will manage its equities and the currency.

    The stock market has gone from boom to bust and back again more times in the past 12 months than most major peers do over the course of a decade.

    Officials proposed circuit breakers in the wake of a market crash in June last year and saddled many of the nation’s 99 million individual investors with losses. The mechanism adds to trading restrictions that include a 10 percent limit on daily swings for individual stocks and a T+1 rule preventing investors from buying and selling the same shares in a single day.

    Critics say circuit breakers exacerbated the stock rout because investors expedite the selling for fears of being locked out. The threshold for trading halts is set so low that they would have kicked in 20 times last summer alone.

    In the United States, trading is halted temporarily after declines of 7 percent and 13 percent in the Standard & Poor’s 500 Index, and only suspended for the rest of the day if losses reach 20 percent.

    “Knowing that the market is going to be shut down and people are not able to trade that adds a lot of anxiety to traders,” said Michael Mullaney, who helps manage US$12 billion as chief investment officer at Fiduciary Trust Co. in Boston. “They’ve been ineffective.”

    Chinese regulators moved to control the damage earlier Thursday, imposing a new limit on the amount of stock that major corporate shareholders can sell. That followed intervention by government funds to prop up shares Tuesday, according to sources familiar with the matter.

    Regulators abandoned the circuit breaker because “it wasn’t working very well or wasn’t doing the job it was supposed to,” Geoffrey Dennis, head of global emerging-market strategy at UBS Securities, said by phone from Boston. “I think its more of a move to try to improve, a technical adjustment that may end up with a better designed instrument down the road.” (SD-Agencies)