Martin Lee @ Sg
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SGX Circuit Breaker to Start

On 24 February 2014, SGX will add circuit breakers as a new market safeguard. The reason for introducing circuit breakers is given as:

In the event of rapid price movements, investors may not have time to make informed decisions when they trade.

Given that the circuit breaker cooling-off period only lasts for 5 minutes, I am not too sure how this mechanism is going to be useful for most investors.

Circuit Breakers

Circuit breakers will initially apply to:

  • Straits Times Index and MSCI Singapore Index component stocks/units and
  • all other stocks/units with a first reference price (see below) at or exceeding $0.50. This also includes stapled securities, funds, exchange traded funds, exchange traded notes and all extended settlement contracts where the underlying stock is subject to circuit breakers.

sgx-circuit-breakerThese securities account for about 80% of trading on the Singapore stock market.

When a trade is placed at a price that is more than 10% away from the reference price, circuit breakers are triggered and a five-minute cooling-off period occurs. During this period, trading can only take place within a price band 10% above or below the last reference price.

The reference price of a security is determined in different ways depending on which part of the trading session a transaction in that security may be occurring. For example, the first reference price of each trading session is either the opening price that day, or if nothing is traded, the last traded price (or closing price) of the previous session.

Thereafter, the reference price is the last traded price as at five minutes before, or if nothing is traded, the first reference price that day. If circuit breakers are triggered for a security, and trades occur during the cooling-off period, the reference price after the cooling-off period is the last traded price as at five minutes before. If no trade occurs during a cooling-off period, the first trade after the cooling-off period is not subject to any circuit breaker.

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