Stock market to adopt three-tiered circuit breaker structure; market to close at 10% fall

2 May 2020 12:00 am

• Second circuit breaker to come into effect if S&P SL20 Index falls 7.5% in a day
• Third circuit breaker to come into effect if S&P SL20 Index falls 10% in a day

 

The capital market regulator, the Securities and Exchange Commission (SEC) announced this week the introduction of a ‘three-tiered circuit breaker’ structure, which is to be attached to the S&P SL20 Index when the market reopens after six weeks.

The SEC stated that the decision was made after taking into account the prevailing market conditions and said it found it was necessary to amend the current methodology with regard to the existing index-based circuit breaker.
“A three-tiered circuit breaker structure is hereby introduced in order to strengthen the capital market and ensure that precautionary measures are in place to eradicate distortion in the S&P SL20 Index by providing a layered approach,” the SEC said in a directive.

Under the first circuit breaker, after the commencement of trading of the CSE for the day, a ‘market halt’ is to be imposed for 30 minutes in the event the S&P SL20 index drops by 5 percent.

Under the second circuit breaker, having recommenced trading after the cooling off period of 30 minutes following the S&P SL20’s drop of 5 percent, if the index drops again by further 2.5 percent, a market halt is to be imposed for another 30 minutes. Under the third circuit breaker, the SEC said upon re-commencing trading subsequent to the cooling off period of 30 minutes following the S&P SL20’s drop of 2.5 percent (altogether S&P SL20 has dropped by 7.5 percent) if the index drops by a further 2.5 percent, trading will be halted and the market shall be closed for the day.

The CSE was called on to implement the three-tiered circuit breaker structure and said that the mechanism should take effect from the date the market re-opens and shall remain in force until further notice.“The mechanism should stay in force until further notice notwithstanding anything to the contrary contained in the ATS or the CDS rules of the CSE or any decision of the Board of Directors of the CSE that may have been taken in respect of market wide circuit breakers,” the SEC said. The CSE was further directed to inform all broker members and participants of the implementation of the new circuit breaker structure. (SAA)