Lawmakers passed the long-awaited act to replace a hotchpotch of market rules and curb a host of abuses ranging from insider trading to listing fraud and theft of investor funds.

The 12-chapter, 214-article law, approved by senior members of the nation's parliament, will take effect next July 1, the official Xinhua news agency said.

It contains ``detailed stipulations on preventing market risk and standardising market operations to protect the interests of investors,'' the agency said.

China's communist rulers shut down stock trading when they toppled the Nationalist government after winning the civil war in 1949.

Market-style reforms of late leader Deng Xiaoping ushered in a return of capitalist stock trading with the Shanghai market formally opening its doors in 1990 and Shenzhen following suit the next year.

But the law, on the drawingboards since 1992, has been ensnared in political wrangling and has undergone repeated revisions up to the final hours before passage.

The law toughens penalties on trading and issuing irregularities, outlines broad powers for the market regulator and states that foreigners may not buy so-called A shares which are supposed to be for domestic investors.

It also forces brokerages to separate their accounts from those of clients, creates a two-tier brokerage sector and clearly divides the banking, trust and securities businesses.

Brokers hailed the new regulatory framework as giving the market much-needed guidance but they fretted over many of the restrictions that will pinch their pocketbooks.

``This should be good news over the long term because it will make a more orderly market,'' said trader Bai Hong at Haitong Securities.

``But in the near term you may see some funds forced out of the market.''

Other brokers echoed those concerns.

``In the securities industry, we are most concerned aboutwhere our funds will come from,'' said analyst Lu Feng at J & A Securities in Shenzhen.

``The majority of companies use customer margin funds for their own trade, so this law will have a serious impact.''

While traders have been anticipating the passage of the law, China's stock markets took the news as a signal to retreat.

Shanghai's A share index for domestic investors was down 0.34 per cent at midsession, while Shenzhen lost 0.32 per cent.

In a sign of the importance of the law to Beijing, state television took the unusual step on Monday night of broadcasting an edited version of the parliamentary debate.

Whereas most laws are announced after closed-door debate, television showed legislators condemning companies that had used fraudulent data to obtain share listings and calling for secret ballots by market regulators to decide whether a listing plan would be approved.