By Yakubu LAAH InvestAdvocate
Lagos (INVESTADVOCATE)-The Nigerian Stock Exchange (NSE) Tuesday announced its set to introduce a rule titled ”Trading Halts Due to Extraordinary Market Volatility (Index Circuit Breakers)”
The NSE said the objective of the Rule is to halt trading in all securities in the event of extraordinary market volatility.
The NSE affirmed the Exchange’s circuit breakers would be triggered by a 5 percent (5%) market-wide decline in the NSE All Share Index (NSE ASI), which will last for a 30 minute period.
According to the Exchange, it currently has a single stock circuit breaker which has been set at 10% and the market-wide Index Circuit Breaker will operate in addition to this.
The NSE affirmed that following the recent market declined by 3.88%, which was the largest single day decline since the 5.89% decline in 2011 and given the recent bearish trends in the market, and the need to provide for an orderly and efficient market, it is necessary to urgently institute the market-wide Index Circuit Breaker.
”The Exchange believes that the Rule is relevant, meaningful and effective in today’s high-speed electronic securities markets. Given the highly-automated nature of today’s markets and improvements in connectivity, the Exchange believes that a trading halt of 30 minutes would be sufficient to allow market participants an opportunity to assess a serious market decline and express their trading interest, with relatively little disruption to the market,” the NSE said.
The NSE is of the view that should the market decline by a further 5% after an initial Index Circuit Breaker trigger of 5%, (for a total of 10%) the market should be closed for the day.
It said a 10% market-wide move is highly unusual in this market, and time should be given for the market to recollect itself before opening the next day, sighting the 2008 market meltdown where the market declined by over 9% in one day.
The NSE further affirmed that the rule seeks to promote just and equitable principles of trade, remove impediments to and improve the mechanism of a free and open market; and protect investors and the public interest.
According to the Exchange, it is expected that triggering of the Index Circuit Breakers will be a relatively rare event that will address severe market declines and enable stabilisation in the market. ”In view of the short duration of their intervention, the circuit breakers should still be able to accomplish their goal,” the NSE said.
This is coming on the heels of the meeting held June 27, 2013 by the National Council of the Nigeria’s Exchange and the approval of a draft rule on the Index Circuit Breakers for exposure to stakeholders in the Nigerian Capital Market (NCM) for comments.
Click here to see the proposed rule on Index Circuit Breakers
