SGX launches price collars during opening, midday, and closing auctions

The price collars will apply to all components of the Straits Times and MSCI Singapore Indexes.

Singapore Exchange (SGX) plans to introduce price collars during the opening, midday and closing auction routines of the securities market to guard against risk of severe price dislocations during auctions, an announcement revealed.

A ±30% of the reference price or band will be implemented during the opening auction; a ±10% of the reference price during the midday break; and a ±10% of the reference price during the closing auction. The reference price for the opening auction refers to the last traded price as at the end of the previous market day, whilst that of the midday break and closing auction is the last traded price earlier in the same market day.

No date for the implementation of the bands has been set. SGX said that it may take up to 18 months before the price collars take effect.

The price collars will apply to all components of the Straits Times and MSCI Singapore Indexes (STI and SiMSCI). They will also be effective on stocks, and units of stapled securities, REITs and business trusts, funds, and exchange-traded funds with price of at least $0.50, the release added.

The decision follows after positive feedback from majority of respondents to a public consultation on the matter, where price collars and price-triggered time extensions were proposed for the auction sessions, said SGX.

A total of 12 parties, including associations representing groups of market participants, responded to the public consultation. Most respondents preferred price collars as they are more comprehensible than time extensions, easier to implement and more cost-effective.

Whilst preparing for the price collars’ implementation, SGX said that it will immediately review any opening auction trade in the STI/SiMSCI component stocks that is executed more than 30% away from the previous day’s closing price, and plans to inform the market that such trades are under review within 5 minutes from market opening.

SGX may also cancel suspicious trades, such as in cases where the price movement is not explained by underlying market reasons.

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