By Denise A. Valdez
THE Philippine Stock Exchange, Inc. (PSE) said it will begin adopting a three-level circuit breaker system that will trigger a trading halt when certain thresholds are breached, as intense market volatility continues amid the coronavirus crisis.
The local bourse operator on Thursday released new guidelines for a multi-level circuit breaker that will be triggered each time the PSE index (PSEi) falls by a certain level.
The rules, which will take effect on May 4 (Monday), were approved by the Securities and Exchange Commission (SEC).
“Our first step to address this (market) 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 Chief Executive Officer Ramon S. Monzon said in a statement.
The Level 1 circuit breaker is based on the original policy introduced during the 2008 global financial crisis. A 15-minute trading halt is automatically implemented when the PSEi drops by at least 10% from the previous session’s level.
For Level 2, there will be an automatic 30-minute trading break when the PSEi falls by at least 15% from the previous day’s close.
Level 3 circuit breaker is tripped if the PSEi plunges at least 20%, halting trade for an hour.
As the coronavirus disease 2019 (COVID-19) pandemic worsened in March, the circuit breaker was triggered three times in four trading days. This prompted the PSE to amend its rules to align with multi-level guidelines in regional markets.
“These will enable the PSE to better manage extraordinary volatility arising from fears over the COVID-19 pandemic,” Securities and Exchange Commission Chairperson Emilio B. Aquino added.
The trading breaks are emergency volatility-control tools meant to help investors digest any activity that may be causing massive selling in the market.
Each level of the circuit breaker may only be triggered once a day.
In case the higher level is exceeded first, the lower level circuit breaker can no longer be triggered on that day.
Also, the circuit breaker level may only be tripped at a specific time before the market’s pre-close. On regular trading days when the market closes at 3:30 p.m., Level 1 may only be triggered until 2:55 p.m., Level 2 until 2:40 p.m., and Level 3 until 2:10 p.m.
Since the PSE is currently observing shortened trading hours and closes at 1 p.m., the Level 1 circuit breaker may only be triggered until 12:25 p.m., Level 2 until 12:10 p.m., and Level 3 until 11:40 a.m.
The PSE has extended the implementation of shortened trading hours for the duration of the enhanced community quarantine. The market will open at 9:30 a.m. and close at 1 p.m. until May 15.
Equity Trader Aniceto K. Pangan from Diversified Securities, Inc. said the revision of the circuit breaker rules will “somewhat mitigate the effects of volatility in the market and give enough time among investors to rationalize on their investment.”
Philstocks Financial, Inc. Research Associate Claire T. Alviar said this will help curb panic selling, as the trading breaks will “give time for traders to calm, so market’s losses for that day may lessen.”
“By temporarily halting the trading, it gives traders more time to digest the news, if there’s any, and evaluate the impact of it in the specific stock, so it provides more time for the investors to think whether the stock is overvalued or already at bargain level,” she said.
“Given this, it may build more investor confidence and trust in the market,” Ms. Alviar added.
The PSEi gained 56.74 points or 1% to close at 5,700.71 on Thursday.