UPDATE: The circuit breakers were lifted by Chinese authorities late on Thursday, January 7.

Hong Kong's investment management industry led by the CFA Institute has expressed concern over the circuit breaker mechanism that has resulted in two trading suspensions at the Shanghai stock exchange yesterday, effectively disrupting the market and jeopardizing fragile investor confidence.

The CFA publicly suggested ways to fine-tune the circuit breaker to make it less disruptive.

"We broadly agree with the practicality to have in place a trading halt mechanism to manage trading activities in times of excessive volatility. This is particularly true in China, with an ultimate goal to protect investors. However, the investment industry is generally concerned about the appropriateness of the design given that could determine if the circuit breaker system is a boon or bane," according Alan Lok, the CFA Institute's head of capital markets policy, Asia Pacific.

In a statement issued to the media, the CFA cites the following principles that may apply to improving the use of circuit breakers: 

* While the circuit breaker could serve as a market safeguard, it is also disruptive to trading activity and can slow down the price discovery process. Therefore, it should only be seen as the last resort to stabilize markets - to minimize the price (side effect) to be paid during market interventions;

* The circuit-breaker mechanism needs to be implemented in a harmonized fashion across exchanges to provide investors with similar expectations and safeguards on whichever venue they trade.

* It would also be ideal if exchanges can actively publicize the operating mode of the mechanism. Such disclosure would provide transparency to investors over the trading environment and the safeguards present.

Mo Ji, chief economist, Asia ex-Japan of Amundi says a possible key trigger to stockmarket volatility in China is the renminbi. "Market gets more and more nervous with the accelerated yuan depreciation recently," she adds.

"The defect in circuit breaker is that it is exaggerating market fears, but clearly not the cause of the market fear. We don't think circuit breaker will become a new normal for A-share investors. However, the mechanism needs to be improved," Mo says.

She expects China's monetary easing to support its stockmarket going forward. "PBOC is a latecomer in aggressive monetary easing following the Fed, BOJ and ECB in that order, hence this ample liquidity will support the market in general," he notes.

The Shanghai Composite Index tumbled 7.3% on Thursday before trading was suspended.