SGX explains why the securities market needs circuit breakers

They could be implemented by year-end.

Singapore Exchange (SGX) announced that it is consulting the public on proposed circuit breakers for the securities market.

SGX said that 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," the exchange said.

Circuit breakers are already 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.

SGX added that 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," it said.

SGX is still 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.

SGX expects to introduce dynamic circuit breakers by the year-end, subject to regulatory approval and industry readiness.