Singapore to put in circuit breakers after share plunge
Singapore Exchange, south-east Asia's biggest bourse, plans to add circuit breakers early next year after a plunge in shares of three commodity companies erased $US6.9 billion ($7.3 billion) in market value over three days.
Under the proposal, trading of a stock will be halted for five minutes if it moves 10 per cent in either direction. The exchange sought public feedback on the plan in June.
"We aim to introduce the dynamic circuit breakers by early next year subject to regulatory approvals," said the exchange's spokeswoman Joan Lew.
The exchange put restrictions last week on the shares of Blumont Group, Asiasons Capital and LionGold after they plunged.
Trading caps to prevent wild swings in the stocks will give investors time to assess their holdings, said trading network Liquidnet Holdings and the Securities Investors Association of Singapore, the largest investor lobbying group in Asia.
Circuit breakers are "safeguards other markets have to allow time for investors to mull over the situation at hand to see if the information out there is sufficient to make an informed decision", said the SIAS president David Gerald.
"Investors will have an opportunity to quickly review their investment decision."
Regulators worldwide have evaluated safeguards since the May 2010 plunge, known as the flash crash, briefly erased about $US862 billion from the value of US equities.
Exchanges there implemented a limit initiative that prevented market makers from quoting shares at prices deemed too far above or below current levels.
Singapore's plan for circuit breakers "should help minimise market manipulation", said IG Asia strategist Kelly Teoh.
"The regulator can hold all directors responsible, including non-executives, or at least have the process in place to bring them in for questioning if the circuit breakers are breached more than once."
The exchange said last week that shares of the three companies had been declared designated securities, prohibiting investors from selling them unless they held the same quantity of stock. Buyers had to pay cash for the transactions. This was aimed at preventing short selling in the shares.
The exchange said there were short sales on Blumont and Asiasons on October 7, contrary to trading directions it gave after classifying them as designated securities.