Singapore Exchange to Adopt Circuit Breakers by 2014

Singapore Exchange Ltd., 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 moves 10 percent in either direction, the exchange said in an e-mailed response to queries. The bourse said it sought public feedback on the plan in June.

“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 imposed restrictions this week on the shares of Blumont Group Ltd., Asiasons Capital Ltd. and LionGold Corp. after they plunged. Trading caps to prevent wild swings in the stocks will give investors time to assess their holdings, according to trading-network Liquidnet Holdings Inc. and the Securities Investors Association of Singapore, the largest investor lobbying group in Asia.

Circuit breakers are “safeguards other markets have to allow time for investors to mull over the situation at hand to see if the information out there is sufficient to make an informed decision,” David Gerald, president of SIAS, said in an e-mailed reply to queries today. “Investors will have an opportunity to quickly review their investment decision.”

Flash Crash

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. Exchanges in that country 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 bourse 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.

The bourse said in a separate e-mailed statement yesterday there were short sales on Blumont and Asiasons on Oct. 7, contrary to trading directions it gave after classifying them as designated securities.

Exchange Probe

“We will be investigating these cases and take the appropriate disciplinary actions as necessary,” Kelvin Koh, head of market surveillance at 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. Scrutiny of the stock began after it surged more than 10-fold in the first nine months of the year.

Blumont Investor

Alexander Molyneux, former chief executive officer of Southgobi Resources Ltd., agreed earlier this week to buy 135 million shares and assume the role of chairman at Blumont after the transaction is completed. The shares, which climbed 54 percent in the past two days, dropped 15 percent at the close of trading in Singapore today.

“I knew the company and its assets quite well, so I thought it was a buying opportunity,” Molyneux said in a Bloomberg Television interview in Hong Kong with John Dawson today. “With what we saw happened last week and on Monday this week to these stocks, it obviously would’ve been helpful to have circuit breakers.”

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. The stock sank 25 percent today.

Record Penalty

LionGold, which yesterday cited its share volatility for terminating talks to buy South American gold explorer Minera IRL Ltd., plunged 87 percent over the three-day period, wiping out S$1.2 billion in value. The stock fell 17 percent today.

The decision to introduce circuit breakers comes a month after Everbright Securities Co. announced a 523 million yuan ($85 million) loss after $3.8 billion in erroneous trading 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 the stock’s value, according to CLSA.

“Circuit breakers are put in place to stop the market or a stock from making illogically high or low moves,” Larry Tabb, founder and chief executive officer of market research firm Tabb Group, said in an e-mail.“A pause gives traders the opportunity to regain their senses.”

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