Following on from our July 2013 issue, the Singapore Exchange (SGX) has recently announced that it will be introducing circuit breakers in the securities market from 24 February 2014 as an additional market safeguard.
Circuit breakers will initially apply to 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 - securities which, according to the SGX, account for about 80% of trading on the Singapore stock market.
Circuit breakers will be triggered when a potential trade is matched at a price that is over 10% away from the reference price, with the reference price being the 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% above or below the reference price. Thereafter, trading resumes with a new reference price as established during the cooling-off period.
With respect to low-priced, non-index instruments (e.g. securities priced below S$0.50), the SGX had indicated in its earlier June 2013 consultation paper that it would not be appropriate to subject these instruments to circuit breakers as there was considerable difficulty in setting the appropriate limits since they were generally more illiquid and volatile, and applying the same thresholds across these instruments may lead to frequent trips of circuit breakers, and thereby be overly disruptive to trading. SGX has accordingly taken the view that the impact of low-priced, non-index instruments on the value of the overall market was not significant and posed low contagion risk to the wider market.
In addition, the SGX will also revise its error trade policy with effect from 24 February 2014. For all securities other than bonds, trades will not be cancelled if the transacted price falls within a price range of 20 minimum bid sizes, or 5%, from the last traded price. For structured warrants, the price range will be 20 minimum bid sizes, or 25%, from the last valid price. Trades done outside of the relevant price range are eligible for review by the SGX. For bonds, any error trade will be eligible for review.
The SGX has commented that the introduction of circuit breakers and the new error trade policy will assure investors of continued safety and transparency even under volatile market conditions, with the implementation of these two initiatives complementing its existing safeguards in support of a fair, orderly and transparent market.