- POSTED: 22 Jan 2014 15:49
Singapore Exchange says the circuit breakers will initially apply to the Straits Times Index, MSCI Singapore Index component stocks and all securities priced S$0.50 and above.
SINGAPORE: Singapore Exchange (SGX) will introduce dynamic circuit breakers in the securities market from February 24.
In a media statement, SGX said circuit breakers will initially apply to the Straits Times Index and MSCI Singapore Index component stocks, and all securities priced S$0.50 and above.
This will also include stapled securities, funds, exchange-traded funds, exchange-traded notes and extended settlement contracts.
These securities account for about 80 per cent of trading on the Singapore stock market.
SGX had proposed the circuit breakers in June last year but calls for the mechanism stepped up after three stocks crashed last October, wiping out S$5 billion of market value in less than an hour of trading.
On whether the initiative could have prevented the penny stock crash if implemented earlier, SGX said they are two different issues.
Magnus Bocker, CEO of SGX, said: "Circuit breakers are there to handle shifts in the market, it is creating a safeguard. To create a dynamics of the market moves during the day, it is very important that by having those circuit breakers you create a trust among investors that if something happens they can have the time to adjust the market.
"I think by blending the two, it is not really the right way to see it because they are really catering to two different things and what was going on in early October is a different story."
SGX said the circuit breaker will kick in when a potential trade is about to be transacted at over 10 per cent away from the security's last traded price from at least five minutes earlier.
Once a circuit breaker is triggered, a five-minute cooling-off period follows where trading can only take place within a price band 10 per cent above or below the reference price.
Trading resumes with a new reference price as established during the cooling-off period.
Meanwhile, SGX said it will also revise its error trade policy from February 24.
It will disallow cancellation for all securities, except bonds, if the transacted price falls within a price range of 20 minimum bid sizes, or five per cent, from the last traded price.
For structured warrants, the price range will be 20 minimum bid sizes, or 25 per cent from the last valid price. Trades done outside of the relevant price range are eligible for review by SGX.
For bonds, any error trade will be eligible for review.
SGX President Muthukrishnan Ramaswami said the introduction of circuit breakers and the new error trade policy will assure investors of continued safety and transparency even under volatile market conditions.
"The implementation of these two initiatives will complement our existing safeguards in support of a fair, orderly and transparent market," said Mr Ramaswami.