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PSX proposes trading halts, enhanced circuit breakers

Updated December 07, 2017

KARACHI: The Pakistan Stock Exchange (PSX) has proposed to widen existing scrip-level circuit breakers (CBs) to maximum 15 per cent and introduce trading halt if the KSE-30 index movement reaches 15pc.

The bourse has passed on the suggestions for public comment, explaining that the proposed measures were in line with practices prevalent in the international markets.

The bourse said the introduction of index-based market halts would facilitate in managing risks. “Imposing such halts on index movement would allow adequate cooling off period to the investors to assess the market,” PSX maintains.

A source at the market reckoned that the change would be effective in about two months. He conceded that the change would result in strong fluctuations and buffer up volumes, but risk would be managed.

On a query why the market halt was proposed to be introduced on changes in KSE-30 Index and not the benchmark KSE-100 Index, the source contended that the KSE-30 Index commanded greater liquidity in which 17-20 stocks were extremely liquid and therefore was more representative of the entire market.

The CBs which currently prevails at 5pc is proposed to be raised to 5pc; 10pc and finally to 15pc of the price movement in phased manners.

For starters, CBs are the maximum allowable price movement upwards or downwards in a single day. A stock that hits either cannot be further traded in that direction. The bourse stated that the new CBs rules would be applied in both ready and futures segment. The existing CBs of 5pc would be enhanced to 10pc gradually increasing by 0.5pc on fortnightly basis and latter in the similar manner to 15pc. In practical application, upon completion of first phase, the CBs of 5pc would be applicable for 45 minutes during which trading would be allowed at 5pc CBs.

Published in Dawn, December 7th, 2017