The two Chinese mainland exchanges will improve a rule governing transactions from next month to help shareholders who want to sell off their holdings in a listed company.

Investors buying into a company via private placement within 12 months before its initial public offering prospectus can sell their shares a year after its listing, according to separate statements by the Shanghai Stock Exchange and Shenzhen Stock Exchange on Friday.

The lock-up period at present is 36 months.

"The shorter lock-up period is expected to impose more pressure on the market," said Wu Jun, an analyst at Galaxy Securities Co.

The sluggish domestic stock market, which dropped more than 50 percent this year, is suffering from the disposal of unlocked shares.

In the first seven months of this year, about 300 billion yuan (US$43.95 billion) in unlocked shares were sold, against 130 billion yuan worth of mutual funds.

However, the new rule is seen as good news for private equity and venture capital funds as it will enable them to withdraw from their investments more easily when the market turns weak.

Global private equity funds have expanded investments in China as they eye its double-digit economic growth at a time when the United States economy is reeling from a credit crunch.

Ten new private equity funds raised a combined US$12.02 billion in the second quarter of this year in China, a jump of 107.6 percent from a year earlier but the amount raised was 39.9 percent lower on a quarterly basis, according to the Zero2IPO Research Center.

Meanwhile, the two exchanges said that companies needn't suspend trading of shares during earnings announcements, but stocks with abnormal movements will be suspended.

Shares will be suspended and a "delisting" procedure will be launched if investors hold less than 25 percent of public shares for 20 straight trading days.

Smaller investors will receive better protection when controlling shareholders misuse funds or provide unauthorized guarantees to third party, according to the rule.