SINGAPORE: Singapore Exchange's regulatory unit is proposing imposing price limits during daily stock auctions to prevent incidents such as the US$41 billion flash crash in January that briefly roiled shares in conglomerate Jardine Matheson.
The proposed rules are the most significant for the securities market since the bourse introduced circuit breakers for the trading session five years ago, officials from SGX Regulation (SGX RegCo) told a news conference on Monday (Jul 15).
Currently, the bourse has no circuit breaks in auctions, during which brokers place buy and sell orders. SGX RegCo is seeking a 30 per cent price cap for the opening auction and a 10 per cent price cap for the midday and closing auctions.
"It's a trade-off between effectiveness and price discovery essentially and we are always trying to balance between these two principles," said Mr Tan Boon Gin, chief executive of SGX RegCo.
Shares in Jardine Matheson crashed 83 per cent in early trade on Jan 24, wiping nearly US$41 billion off its market value, before rebounding as its shares changed hands far below the market level.
Some brokers involved in the trade had requested SGX to amend or cancel the trades but SGX had said trading was orderly and it found no basis to cancel the transactions after a review.
"The circuit breakers are not available for auctions, so whatever we are proposing today is for auctions. Whatever happened in Jardine Matheson took place during the opening auction," Mr Tan said.
SGX RegCo officials said some price caps are already used by exchanges in Asia and the United States in daily auctions.
SGX RegCo is seeking an extension of the auction process and also considering a hybrid model, where time extensions will apply for the opening and mid-day auctions while a price cap will be applied on the closing auction.
Public consultation for the proposals ends on Aug 15 and they could come into effect next year, officials said.