Singapore Exchange (SGX) has launched a public consultation on a proposal to introduce circuit breakers onto its securities market in the second half of 2011.
Circuit breakers are triggered by sudden price movements and typically prevent trading for a fixed period, creating a pause to enable price levels to stabilise. SGX said circuit breakers would provide a safeguard against potential market disorderliness in times of high price volatility, thereby enhancing the robustness of the securities market and increase confidence.
The proposed circuit breakers will apply to component stocks in the Straits Times Index (STI) and the MSCI Singapore Free Index (SiMSCI), ETFs based on these indices, and extended settlement contracts. If adopted, they would operate during the continuous trading hours from 09.00 to 17.00 but notduring opening and closing routines.
Under SGX's proposals, trading can occur within a price band of 10% from the reference price. If there is an incoming order that would result in a trade outside of the price band, the incoming order will be rejected and a cooling-off period begins, which will last for five minutes. Trading can continue within the price band. After the cooling-off period, a new price band is established with the reference price as either the upper or lower limit price of the previous price band, which was exceeded.
SGX is seeking comments on the appropriate treatment of structured warrants on the counters which are subject to circuit breakers, as well as the coordination between traded products based on our market indices. Market participants and members of the public can comment on the proposal until 28 July 2011.
Market-wide circuit breakers were introduced on a pilot basis on 16 June 2010 in the US, where they halt trading on a stock for five minutes if a stock rises or falls 10% in a five-minute period. Regulators are currently considering a move to a ”limit up/limit down' scheme that would follow the SGX model of allowing trading to continue within a fixed price band.