New circuit breakers for PSX from next month

Updated December 11, 2019

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In this file photo, orkers clean a glass facade of the Pakistan Stock Exchange (PSX) building in Islamabad on December 3, 2018. — Reuters/File
In this file photo, orkers clean a glass facade of the Pakistan Stock Exchange (PSX) building in Islamabad on December 3, 2018. — Reuters/File

KARACHI: Trading at the stock market will be brought to a halt when the market capitalisation-based KSE-30 index moves up or down by 4pc during the trading session in a single trading day, the Securities and Exchange Commission of Pakistan (SECP) spokesperson Musarat Jabeen confirmed to Dawn on Tuesday.

She said that the SECP had approved the regulation to come into effect from the end of January 2020. The application of circuit breaker on KSE-30 index was meant to prevent irrational price fluctuations; give the market a cooling period and provide facility to brokers to deposit their margins.

The spokesperson stated that the apex regulator had also approved the increase in circuit breaker levels (maximum permitted rise and fall in the price of a particular stock on a single day) to 7.5pc from existing 5pc.

“The increase will be made in a gradual manner ie 0.5pc every 15 days till it reaches the new upper limit”. The spokesperson added that the index-based market limit would be increased to 5pc once the circuit breakers are at 7.5pc after the gradual rise.

Regulator proposes trading halt on 4pc change

Ms Jabeen told Dawn that circuit breakers were considered to have effect on curbing price discovery, making exit difficult for investors and are an inefficient mode of managing price volatility.

Derivative products also do not function efficiently in the presence of such constrains and require more freedom of movement in the underlying market.

On the other hand, imposition of market halts base on the movement of a benchmark index is considered to be an effect can be an effective tool for managing intra-day risk.

“The prevailing circuit breakers at PSX were also considered by the market participants as narrow and hindrance to effective price discovery and growth of market line with international best practices.”

Globally, emerging and developed markets such as India, Thailand, Malaysia, US and Canada have accordingly put in place enhanced scrip level circuit breakers along with index level market halts to curtail market wide extreme movements.

“As a part of SECP’s continuous efforts to develop the capital markets in Pakistan in line with international best practices, the SECP has approved the amendments in the PSX regulations for the above changes.”

Published in Dawn, December 11th, 2019