Singapore to put in circuit breakers after share plunge
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.
Frequently Asked Questions about this Article…
Circuit breakers on the Singapore Exchange are mechanisms designed to temporarily halt trading of a stock if its price moves 10% in either direction. This pause allows investors time to assess their holdings and make informed decisions.
The Singapore Exchange is introducing circuit breakers to prevent wild swings in stock prices, like those experienced by three commodity companies, which resulted in a significant market value loss. These measures aim to minimize market manipulation and provide investors with time to evaluate their investment decisions.
When a stock's price moves 10% in either direction, trading will be halted for five minutes. This gives investors a chance to review their positions and make informed decisions, potentially reducing panic selling or buying.
The decision to consider circuit breakers was prompted by a significant plunge in shares of three commodity companies, which erased $US6.9 billion in market value over three days. This highlighted the need for safeguards to protect investors and stabilize the market.
Circuit breakers benefit everyday investors by providing a pause in trading during extreme price movements. This pause allows investors to gather information, assess the situation, and make more informed investment decisions, reducing the risk of impulsive actions.
Designated securities on the Singapore Exchange are stocks that have restrictions placed on them, such as prohibiting investors from selling unless they hold the same quantity of stock. This measure aims to prevent short selling and stabilize the stock's price.
To prevent market manipulation, the Singapore Exchange plans to implement circuit breakers and has designated certain stocks with trading restrictions. These measures aim to stabilize the market and hold directors accountable if circuit breakers are breached multiple times.
The introduction of circuit breakers aligns with global regulatory trends following the 2010 flash crash, where safeguards were evaluated worldwide. Similar initiatives have been implemented in other markets to prevent extreme price movements and protect investors.
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