Are things looking better at China's stock market regulator?

With the onset of volatility grappling a directionless market at the moment, it doesn't quite compare to the hair raising periods most traders have experienced over the last year in financial markets. In attempt to pinpoint exactly where the troublesome environment grew from, traders wouldn't find it difficult to point in the direction of the Chinese equity bubble that's seemingly put the brakes on global equity valuations going higher.

At the time, August 2015 to be precise, there had been a protracted build up of negative sentiment flowing from China as to the raunch daily movements in stock prices that had taken place after an effort to liberalise the financial markets to be able to reach more participants had taken a wrong turn, sending investors into a flight of panic over the safety of their investments.

It appeared that former Chinese Securities Regulatory Commission Chairman Xiao Gang had overplayed his hand and allowed an excess of freedom for brokers to exploit individuals, most of these people inexperienced and ill-equipped to deal with financial instruments, by offering high levels of leverage that would offer them exposure at a fraction of the price thus creating a speculative frenzy to thrust valuations into the stratosphere.

This in effect caused wild price moves to develop once the CSRC decided to clamp down out of fear that it had caused an equity bubble to develop that could be devastating to the entire global financial system if it were to burst which at the time seemed highly probable given the extended rally.

The world noted this anomaly and took the que that now would be the best time to begin an anticipated selldown that had been expected to come some months before. All eyes were now squarely focused on the Chinese stock market, a position that didn't fit comfortably with government officials who prefer to hold their cards close their chests prompting them to enter the fray and halt the hemorrhage.

China moves to contain technology bubble https://t.co/nAEMhMk6oT

— CNBC (@CNBC) May 11, 2016

Pressure was on Gang to rectify his mistakes but it was too late and by the time it came to implement circuit breakers in January of this year, the signs were on the wall that his tenure as chairman of CSRC was coming to an end. The failure of the circuit breakers proved to be the end of Gang with Liu Shiyu taking over the reins.

At the time I wrote that Shiyu had a difficult task ahead in bridging the gap between the rules needed to be in place that would allow for functionality, marketability and transparency and the forces of supply and demand that would be harmed if too much intervention was placed in the market.

Three months into his new job and the emergence of the type of policy Shiyu will be bringing to the market is taking shape with the latest news that the CSRC will prevent companies that intend issuing new stock for the purpose of buying assets that don't form part of their core business from doing so in an effort to curb what many speculate to be a new bubble.

Opening up financial markets affords the companies looking for additional means of capital injection as much freedom as it does to the individual investor dictating over his financial freedom. However as we've witnessed with the newly founded Chinese investor, the level of aptitude hasn't matched the sophistication of their international counterparts.

This has led companies to neglect the business which forms part of its primary operations and find alternate ways of raising fresh cash from the market under the veil of hopeful prospects in industries that are benefitting from forthcoming positive sentiment due to their positioning in a transitive economy.

What confidence Shiyu measures give to the market is that public money is considered sacred, a juxtaposition from his predecessor who liberated investors but failed to foresee the shaky foundation companies issuing stock were standing on.

Although seen as more intervention rather than less, a contradiction to what authorities said wouldn't happen, I believe the move is in the right direction by emphasising the importance for companies listed on the exchange to be transparent and diligent when using funds raised from the public, a sign of progression when it comes to financial markets in China.

Hopefully this is just the beginning of great things to come from CSRC chairman Liu Shiyu who's started out on the right footing by calming fears and bringing order back into Chinese equities. However the challenges will come when global markets experience pressure from the lack of evidence of a healthy economic climate which would weigh down heavily due to China's part in the equation. The true test will be whether these officials stand steady in their convictions and if they've done enough to prevent a total collapse.