By Denise A. Valdez
THE Philippine Stock Exchange, Inc. (PSE) is adjusting its trading threshold to reduce market volatility amid the coronavirus disease 2019 (COVID-19) pandemic.
In a memorandum posted on its website at the weekend, the bourse operator said it would trim the trading range of individual stock prices by setting the lower static threshold at 30% below the reference price, from 50% previously.
The upper static threshold will remain 50% above the reference price.
Under the PSE Trading Rules, thresholds are imposed to limit the price of an order for a security or group of securities. There are two kinds of thresholds in the PSE Trading Rules: static and dynamic. The static threshold, which is being revised, is an absolute value that sets the lower and upper limit for trading.
“We are looking at measures to address the present volatility in the stock market due to uncertainties from COVID-19. One of the measures we decided to adopt is to tighten the trading band for securities,” PSE President and Chief Executive Officer Ramon S. Monzon said in a statement.
The adjusted lower static threshold will take effect on Tuesday, March 24.
“We already configured our trading system to recognize a 30% decline in share price as the floor price of a security,” Mr. Monzon added.
He said the PSE is following rules implemented in other exchanges in the region, where the lower static threshold levels are 10-30%.
Philstocks Financial, Inc. Research Associate Claire T. Alviar said the new rule would ease market volatility seen in recent weeks.
“Given that the lower static threshold will be 30%, it will limit losses in the market and will further protect the investing public from the sell-off,” she said in a text message.
She said limiting the losses in a stock would cut the market losses as a whole.
“It would also calm sellers sooner than the previous guidelines, so bargain hunters can take cues earlier and this could help the stock price from the sell-offs, which would also help and lift the market at the same time,” Ms. Alviar added.
Diversified Securities, Inc. Equity Trader Aniceto K. Pangan agreed on the benefits of the new rule to the market’s current situation.
“As we are in for a volatile market, this may somehow relieve the stress on the investor side in terms of the limit on the downside of the market, as well as their particular holdings,” he said in a text message.
The main index closed at 4,778.76 on Friday, down 17.5% on a weekly basis. It fell 13.34% or 711.95 points to 4,623.42 on March 19, its biggest one-day drop in points and percentage. It also posted a record intraday decline of 24.29% that day.