Singapore Exchange Ltd., Southeast
Asia’s biggest bourse, will add circuit breakers next month that
protect investors from excessive stock swings after a plunge in
three commodity companies erased $6.9 billion in market value.
The trading restrictions will apply to Straits Times Index (FSSTI)
and MSCI Singapore Index members and all securities priced from
50 Singapore cents from Feb. 24, according to a regulatory
filing. The circuit breakers are triggered when a stock rises or
falls more than 10 percent from at least five minutes earlier
and cause a five-minute period where trading is limited,
according to SGX’s statement. The rules cover securities that
account for about 80 percent of trading on the Singapore market.
The exchange operator said in October that it would
implement automatic price controls after declines in commodity
companies Blumont Group Ltd., Asiasons Capital Ltd. and LionGold
Corp. spurred an investigation by the Monetary Authority of
Singapore. All three companies have said they don’t know what
precipitated the plunge. Hong Kong Exchanges Clearing Ltd. is
studying whether its market needs circuit breakers to prevent
trading errors from causing large declines or surges in prices,
a person familiar with the matter said this month.
“Circuit breakers are very useful, especially now that
many trades are computer-generated,” Nader Naeimi, Sydney-based
head of dynamic asset allocation at AMP Capital Investors, which
manages $131 billion, said by phone. “It will improve market
stability and help build investor confidence in the market.”
Erroneous Trades
If the circuit breaker is triggered, investors can only
trade within 10 percent of the reference price from at least
five minutes earlier, according to the statement. Normal trading
resumes five minutes later.
“The introduction of circuit breakers and the new error-trade policy will assure investors of continued safety and
transparency even under volatile market conditions,”
Muthukrishnan Ramaswami, president of SGX, said in the
statement.
The bourse operator will also revise its erroneous trade
policy, it said. Purchases will not be canceled if the price
falls within a range of 5 percent or 20 minimum bid sizes from
the last traded price for most securities. The price range for
structured warrants will be 25 percent or 20 minimum bid sizes
from the last valid price, SGX said.
Trades done outside of the relevant price range are
eligible for review by SGX, the bourse operator said in the
statement.
Trading Curbs
Exchanges have responded to the increased automation of
trading by introducing curbs to prevent mistaken transactions
from influencing prices. U.S. equity markets are now protected
by a system known as limit up/limit down, which prevents trades
outside certain price bands. Chicago-based CME Group Inc., owner
of the world’s biggest futures market, pauses trading during
extreme volatility.
SGX suspended trading on the three commodity stocks on Oct.
4 when the shares tumbled at least 42 percent. The bourse
declared them “designated securities” on Oct. 6, meaning
investors were prohibited from selling unless they held the same
quantity of stock and buyers had to pay in cash. The exchange
removed the curbs from Oct. 21, saying trading had become more
stable.
Blumont, which invests in minerals and energy, had soared
more than 1,000 percent last year through the end of September
to lead gains on the FTSE Straits Times All-Share Index,
prompting the SGX to investigate the surge. The shares plunged
from an all-time closing high of S$2.45 on Sept. 30 to 7.2
Singapore cents today.
Asiasons (ACAP) slumped 96 percent from its record close of S$2.83
on Oct. 1 to 11.2 Singapore cents today. LionGold tumbled 91
percent from its peak on Aug. 29 to 15.1 Singapore cents.
To contact the reporter on this story:
Eleni Himaras in Hong Kong at
ehimaras@bloomberg.net
To contact the editor responsible for this story:
Nick Baker at
nbaker7@bloomberg.net
Singapore Exchange to Add Circuit Breakers Next Month
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