THE Shanghai Stock Exchange, operator of China’s biggest bourse, pledged to crack down on illegal sales of previously locked-up shares to ease investors’ concerns about a flood of stocks entering the market.

“Severe punishment will be implemented if holders are found breaching the rules,’’ Zhang Yujun, the exchange’s president, said Saturday.

The Shanghai and Shenzhen exchanges had both found sales that violated regulations, he said.

The securities regulator last month tightened the rules for the sale of locked-up shares to help revive the country’s stock market, which has plunged 27 percent this year.

Shares worth 1.7 trillion yuan (US$243 billion) will become eligible for trading this year and 4.3 trillion yuan in 2009 as lock-up periods end.

The locked-up shares are a legacy of China’s three-year drive to convert mostly State-held, non-tradable stock into tradable shares. Major shareholders of non-tradable stock are subject to a two-year lock-up period after the conversion.

The new rules mean that investors selling more than 1 percent of a publicly traded company’s shares within a month must use block trades, a bulk-trading method that requires buyers to be lined up beforehand. Previously, the shares could be sold directly to the market.

“Block trades relieve market pressure,’’ said Zhang.

(SD-Agencies)