The China Securities Regulatory Commission (CSRC) will allow shareholders of listed companies to issue exchangeable bonds, a move to ease oversupply in the stock market that has helped to drive down share prices.

The CSRC published a draft regulation on the newly-introduced financing tool on its website on Friday night, soliciting public comment by September 12.

Shareholders can issue bonds with an embedded option to exchange the bond for the stock of a company other than the issuer at least a year after the issuance, according to the regulation.

Such bonds could provide shareholders with a new funding channel other than simply dumping their holdings. This would ease the impact of heavy selling, said an unidentified CSRC official in a statement on the website.

Heavy selling has been cited as a factor that has aggravated liquidity strains in the country's flagging stock market.

The Shanghai index is down more than 58 percent this year and more than 63 percent from its peak in October. It fell 3.29 percent to 2,202.45 on Friday.

(Xinhua News Agency September 6, 2008)