SGX Proposes Circuit Breakers for Securities Market
Circuit breakers seek to address sharp price movements in a traded instrument within a short period and give the market time to take stock of the situation. In this manner, circuit breakers serve as a safeguard against disorderly trading. Circuit breakers are a feature of stock exchanges in some other jurisdictions including Australia, the UK and US. SGX had consulted the public in July 2011 on static circuit breakers.
The proposed dynamic circuit breaker comprises a price band of +/-10% of the price of an instrument. The price band will therefore adjust as the traded price of the instrument changes. Should a trade attempt to be executed at a price outside the price band, the circuit breaker will trip and a 5-minute cooling-off period will be activated. 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, SGX expects to introduce dynamic circuit breakers by the year-end.