Singapore Exchange Ltd. (SGX), Southeast Asia’s biggest bourse, plans to add circuit breakers by early next year after a plunge in shares of three commodity companies erased $6.9 billion in market value over three days.
Under the proposal, trading of a stock will be halted for 5 minutes if it breaches 10 percent in either direction, the exchange said in an e-mailed response to queries. The bourse sought public feedback on the plan in June, it said.
“We aim to introduce the dynamic circuit breakers by early next year subject to regulatory approvals,” Joan Lew, a spokeswoman for the exchange, said in the statement yesterday.
The bourse operator imposed trading restrictions this week on Blumont Group Ltd. (BLUM), Asiasons Capital Ltd. and LionGold Corp. (LIGO) after their stock prices plunged. Trading caps to prevent sharp gains or losses will give investors time to assess their holdings, according to Liquidnet Holdings Inc. and the Securities Investors Association of Singapore.
Regulators worldwide have evaluated safeguards since the May 2010 plunge known as the flash crash briefly erased about $862 billion from the value of U.S. equities. American exchanges have implemented a limit-up/limit-down initiative that prevents market makers from quoting shares at prices deemed too far above or below current levels.
The city's plan for circuit breakers ``should help minimize market manipulation,'' said Kelly Teoh, a strategist at IG Asia Pte in Singapore. ``The regulator can hold all directors responsible including non-executives or at least have the process in place to bring them in for questioning if the circuit breakers are breached more than once."
The Singapore exchange said Oct. 6 that shares of the three companies have been declared designated securities, prohibiting investors from selling them unless they hold the same quantity of stock. Buyers must make cash payments for the transactions, it added.
The bourse said in a separate statement yesterday there were short sales on Blumont and Asiasons (ACAP) on Oct. 7, contrary to trading directions it gave after classifying them as designated securities.
“We will be investigating these cases and take the appropriate disciplinary actions as necessary,” Kelvin Koh, head of market surveillance at the Singapore Exchange, said in the statement. “SGX will continue to monitor closely the market in the three designated securities. We will assess the trading conditions and lift the designation as soon as it is appropriate to do so.”
Regulators around the world have stepped up oversight of capital markets after the global financial crisis in 2008. The Monetary Authority of Singapore established a 13-member council in 2010 with the goal of boosting corporate governance standards and investor confidence.
Blumont, which invests in minerals and energy, slumped 94 percent over two trading days on Oct. 4 and Oct. 7. That shaved S$4.9 billion ($3.9 billion) off its market value, prompting the company to scrap a proposed S$146 million acquisition of Australia’s Cokal Ltd.
Asiasons, which last month bought a stake in U.S. oil and gas producer Black Elk Energy Offshore Operations LLC, tumbled 96 percent over the three trading days through Oct. 8, shaving S$2.5 billion in market value.
LionGold, which said this week it’s in advanced negotiations for a possible acquisition of Minera IRL Ltd., a gold explorer in Peru, Argentina and Chile, plunged 87 percent over the three-day period, wiping off S$1.2 billion in value.
The decision to introduce circuit breakers comes one month after Everbright Securities Co. (601788) announced a 523 million yuan ($85 million) loss after $3.8 billion in erroneous trading orders that roiled China’s equity market and drew a record regulatory penalty that banned four executives from the market for life.
Trading in the National Stock Exchange of India’s Nifty index and some individual companies stopped for 15 minutes in Mumbai a year ago after the 50-stock gauge tumbled as much as 16 percent. A brokerage that mishandled trades for an institutional client was to blame, the exchange said then.
Markets including South Korea, India and Taiwan use circuit breakers, while countries including Japan have daily price limits depending on their value, according to CLSA Ltd.
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