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PSE to adopt three-level circuit breaker amid market volatility due COVID-19
By TED CORDERO, GMA News Local bourse operator Philippine Stock Exchange Inc. (PSE) is amending its trading rules on the market-wide “circuit breaker,” adopting a three-phase system in a bid to manage volatility in the market.
The current circuit breaker is automatically triggered when the benchmark PSEi declines by at least 10%, resulting in a 15-minute trading halt of the entire stock market.
The new three-level circuit breaker system will be effective on Monday, May 4, 2020, the PSE said in an advisory on Thursday.
The new circuit breaker setup was introduced to help manage increased volatility in the stock market.
“We have seen unprecedented market volatility in reaction to uncertainties caused by the COVID-19 crisis. Our first step to address this volatility was to reduce the lower static threshold of securities from 50% to 30%. We followed this up with the addition of two circuit breaker levels to give the entire market a breather when these are triggered,” PSE president and CEO Ramon Monzon said.
The adjustments are emergency measures necessary to protect investors and maintain order in the market, said Securities and Exchange Commission (SEC) chairperson Emilio Aquino.
“These will enable the PSE to better manage extraordinary volatility arising from fears over the COVID-19 pandemic,” Aquino added.
The Level 1 circuit breaker will still be based on the original circuit breaker policy introduced in 2008, where a 15-minute market-wide halt is implemented when the PSEi drops by 10% from the previous trading session’s level.
The Level 2 circuit breaker will be triggered when the PSEi falls by 15% from the previous trading day’s closing level and involves a 30-minute trading halt.
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The circuit breaker levels mentioned can only be triggered once per trading day, the PSE said.
Also, in case the higher level is breached first, the lower level circuit breaker will no longer be triggered on that trading day, it said.
The local bourse operator noted that circuit breaker will not be triggered if doing so will result in having less than five minutes of continuous trading prior to the pre-close, which is presently at 12:45 p.m. under the shortened trading schedule.
“This means, there will be no trading halt for Level 1 if it is triggered at 12:26 p.m. onwards, if Level 2 is triggered at 12:11 p.m. onwards and if Level 3 is triggered at 11:41 a.m. onwards,” the PSE said.
The previous single level circuit breaker has been tripped four times since it was adopted in September 2008.
First time was on October 27, 2008 and then three successive circuit breakers were triggered on March 12, 13, and 19, 2020 when the market saw increased volatility at the height of COVID-19 fears.
The PSE Trading Rules and Implementing Guidelines of the Trading Rules on the new circuit breakers were approved by the SEC.
“We thank the SEC for their support in approving amendments to our rules and guidelines to help us address the needs of the equities market at this time,” Monzon said.
The configuration of the trading platform of the PSE to incorporate a new three-level circuit breaker has been completed by NASDAQ and successfully tested by PSE’s Market Operations Division.—AOL, GMA News