SGX to install circuit breakers by year's end

PHOTO: SGX to install circuit breakers by year's end

THE Singapore Exchange (SGX) plans to introduce circuit breakers in the local market by the end of the year, it said on Wednesday.

In the meantime, it is seeking comments and suggestions from the public on a number of related issues, such as how widely these circuit breakers should be applied.

Circuit breakers automatically halt trading in a stock or derivative that has suddenly experienced a sharp price movement within a short period.

This break in trading is meant to give the market time to take stock of the situation and prevent widespread panic.

Several stock exchanges in developed markets already feature circuit breakers, including Australia, the United States and Britain, which put these curbs in place in the wake of the 2008-2009 financial crisis.

SGX is proposing the installation of a dynamic circuit breaker that will be triggered if the price of a stock or derivative rises or falls more than 10 per cent within an unspecified period. This is known as the price band.

The price band will be adjusted as the traded price of the instrument changes at each session's closing.

"Should a trade attempt to be executed at a price outside the price band, the circuit breaker will trip and a five-minute cooling-off period will be activated," the SGX said in a statement.

"During the cooling-off period, market participants can continue to trade within the price band, which will remain constant throughout the cooling-off period."

Once the cooling-off period ends, the price band will be adjusted to reflect changes in the price of the instrument.

SGX is consulting the market on a range of matters including:

- The proposed range of instruments and markets to which circuit breakers will apply;
- The operation of the price band; and
- The treatment of related instruments under SGX's proposed circuit breaker model.

Subject to regulatory approval and industry readiness, these circuit breakers could be put in place by the year-end, the bourse operator said.

SGX has been considering installing circuit breakers for several years. In July 2011, it had said that it planned to introduce them by the end of that year.

The exchange had said then that the circuit breakers would apply only to the 30 component stocks of the Straits Times Index and the popular MSCI Singapore Free Index.

SGX chief executive Magnus Bocker has also said the bourse would open its doors to high-frequency traders once circuit breakers and other rules are in place.

The consultation paper is available on SGX's website. Market participants and members of the public can submit comments and suggestions until July 3.

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