Regulatory Notice 8.14.1 — Circuit Breaker
1.1 Rule 8.14.1 states that SGX-ST may prescribe, for certain securities and futures contracts, Circuit Breakers which are designed to temporarily restrict trading in these securities and futures contracts.
1.2 Rule 8.14.2 adds that SGX-ST shall impose a Cooling-Off Period on such securities or futures contracts referred to in Rule 8.14.1 if an incoming order seeks to be matched, either partially or fully, with an existing order in the Trading System at a price outside the Circuit Breaker.
1.3 The Cooling-Off Period can guard against disorderly situations in the face of rapid and unchecked market movements, by allowing the market and regulators a pause to take stock of the situation.
1.4 It is not intended to halt price movement. A fundamental role of a capital market is timely and accurate price discovery; as such, the market should be allowed to determine its own prices so long as it remains fair and orderly. Where large price movements are justified, what the circuit breaker facilitates is a more measured market movement enabled by the imposition of pauses that allow the market to analyse market conditions and all available information before resuming. By moderating the pace of big price movements, the circuit breaker prevents alarm to the market and averts contagion risk to other markets.
1.5 This Regulatory Notice sets out the securities and futures contracts for which SGX-ST has prescribed Circuit Breakers, the characteristics of Circuit Breakers and Cooling-Off Periods and the calculation of Circuit Breakers.
2. Coverage of Circuit Breaker
2.1 Circuit Breakers will apply to the following instruments:
(a) Stocks and unit trusts that are components of the Straits Times Index or the MSCI Singapore Free Index;
(b) Stocks, stapled securities, real estate investment trusts, business trusts, funds, exchange traded funds and exchange traded notes that have a reference price at the start of the Market Day of 0.50 or more in the underlying currency that Market Day. In the case of Yen-denominated instruments, Circuit Breakers are applied if the reference price at the start of the Market Day is ¥500 (denoted as "0.50" in the Trading System) or more that Market Day; and
(c) Marginable Futures Contracts with underlying instruments falling within (a) or (b) above.
2.2 The instruments are assessed against the criteria set out in paragraph 2.1 above on a daily basis to determine if Circuit Breakers will apply that Market Day.
2.3 As stated in Rule 8.15.2, SGX-ST may impose a trading halt on a security or futures contract when its underlying, or such instrument on the same underlying as SGX-ST may prescribe, is subject to a Cooling-Off Period pursuant to Rule 8.14.2. This includes structured and company warrants. The duration of such halt will be aligned with the Cooling-Off Period.
3. Characteristics of Circuit Breakers and Cooling-Off Periods
3.1 A Circuit Breaker will have the following features:
(a) The Circuit Breaker will be in operation during the Trading Phase.
(b) The Circuit Breaker, will take the form of a price band. Trading in a security or futures contract must be within or at the upper and lower thresholds of the price band. The price band is based on a prescribed percentage threshold from a reference price. The calculation of the price band is described in paragraph (d) below.
(c) When an incoming order seeks to match against a resting order at a price outside the upper or lower threshold, a Cooling-Off Period will be activated. The incoming order will be rejected and will not be matched at a price outside the upper and lower thresholds. An incoming order may be partially matched against other orders up to the price band, beyond which the outstanding order will be rejected. The trades that are executed at or within the price band will not be affected by activation of the Cooling-Off Period, and only the outstanding volume of the incoming order will be rejected.
(d) During the Cooling-Off Period, trading in a security or futures contract continues at or within the price band that was established when the Cooling-Off Period was activated. If an incoming order seeks to match against a resting order at a price outside the upper or lower threshold, the incoming order will be rejected and will not be matched at a price outside the upper and lower thresholds. This will not extend the cooling-off period.
(e) After the Cooling-Off Period ceases, the upper and lower thresholds of the Circuit Breaker will be adjusted. The adjustment of the price band is described in paragraph (d). Trading in a security or futures contract will continue within and at the new price band.
3.2 When a Cooling-Off Period is activated, the affected instrument(s) will have "CIRB" indicated in the "Rmk" column on the SGX website for the duration of the Cooling-Off Period. The change in session state will also be broadcast to Trading Members.
3.3 The duration of the Cooling-Off Period is five minutes. The Cooling-Off Period will cease upon the commencement of any of the following, even if five minutes have not elapsed:
(a) Pre-close Phase;
(b) Mid-Day Break;
(c) Suspension; and
(d) Trading Halt.
3.4 The Equilibrium Price at the end of the Opening Routine, Mid-Day Break, Closing Routine or Adjust Phase will not activate a Cooling-Off Period (refer to Regulatory Notice 8.2.1 for details on the Opening Routine, Mid-Day Break, Closing Routine and Adjust Phase).
4. Calculation of Circuit Breaker
4.1 The upper threshold is 10% above the reference price and the lower threshold is 10% below the reference price.
4.2 The reference price for the start of the Trading Phase in each trading session is as follows:
(1) the opening price of the security for that trading session, failing which
(a) (i) in the case of a Prescribed Instrument, the last traded price in the morning trading session, failing which, the closing price of the Prescribed Instrument on the previous Market Day, and (ii) in the case of any other security, the previous trading session's last traded price, or
(b) where a share consolidation or share split has occurred since the price stated in (a), a price derived from a pricing model established by SGX-ST (for example, the last traded price prior to the effective date of the consolidation, adjusted for the consolidation ratio), failing which
(3) the last available traded price.
4.3 The reference price at the start of the Trading Phase in each trading session is applicable to the first five minutes of that Trading Phase. The reference price for the rest of the Trading Phase is as follows:
(a) the last traded price as of five minutes prior to each potential trade; failing which
(b) the reference price at the start of the Trading Phase.
4.4 If there are trades done during the Cooling-Off Period, the reference price following the Cooling-Off Period will be as described in paragraph 4.3 above. If there are no trades done during the Cooling-Off Period, the first trade after the Cooling-Off Period will not be subject to the Circuit Breaker. The price of the first trade will then serve as the reference price for the five minutes following the trade. Thereafter, the reference price will be as described in paragraph 4.3 above.
4.5 In the event that an instrument is suspended or halted, the reference price immediately upon the lifting of a halt/suspension for a security will be as follows:
(a) the Equilibrium Price, failing which
(b) the last traded price in the Trading Phase preceding the halt/suspension, failing which
(c) the reference price at the start of the Market Day.
4.6. The reference price of a Marginable Futures Contract is the reference price of its underlying instrument at all times.
5. Illustration of Circuit Breaker operation
5.1 Security A has an opening price of $1.00. The Circuit Breaker will apply to Security A on that Market Day.
5.2 No trades are executed after the market opens.
5.3 At 11:00 hours, an incoming buy order for one lot of Security A at $1.20 attempts to match against a resting sell order for five lots of Security A at $1.20.
5.4 The reference price of Security A at 11:00 hours is $1.00 because there have been no trades in the Trading Phase, and the opening price is $1.00.
Therefore, at 11:00 hours:
Therefore, at 11:00 hours:
• The upper limit of Security A's price band is $1.00 + (10% x $1.00) = $1.10; and
• The lower limit of Security A's price band is $1.00 - (10% x $1.00) = $0.90.
5.5 As the incoming buy order, if matched, would result in a trade outside the upper limit of the price band, it is rejected, and the Cooling-Off Period begins. The Cooling-Off Period is in place from 11:00 hours to 11:05 hours, during which trading can occur within the price band i.e. at or between $0.90 and $1.10. If a buy order for one lot of Security A at $1.20 is re-entered at this time, it will be rejected.
5.6 No trades occur during the Cooling-Off Period. The first trade after the Cooling-Off Period will not be subject to the Circuit Breaker. If the incoming buy order for one lot of Security A at $1.20 is re-entered at this time (and the resting sell order for five lots at $1.20 is still in the order book), it will result in a traded price of $1.20. $1.20 will then be the new reference price for at least the next five minutes of trading.
5.7 Security B has an opening price of $1.00. The Circuit Breaker will apply to Security B on that Market Day. At 10:00 hours, the last traded price as of five minutes ago (i.e. at 09:55 hours) is $0.90. This is therefore the reference price at 10:00 hours.
5.8 At 10:00 hours, two incoming sell orders are simultaneously placed for Security B at $0.82 (five lots) and $0.80 (five lots). The resting buy orders in terms of price priority are a resting buy order for five lots of Security B at $0.82, and another resting buy order for three lots of Security B at $0.80.
As the reference price of Security B at 10:00 hours is $0.90:
As the reference price of Security B at 10:00 hours is $0.90:
• The lower limit of Security B's price band is $0.90 - (10% of $0.90) = $0.81; and
• The upper limit of Security B's price band is $0.90 + (10% of $0.90) = $0.99.
5.9 The incoming sell order will be matched at $0.82 (five lots) against the resting buy order for five lots at $0.82. The remaining sell order of $0.80 (five lots) will then attempt to match against the resting buy order for three lots of Security B at $0.80.
5.10 As the incoming sell order for $0.80, if matched, will result in a trade outside the lower limit of the price band, the order is rejected, and the Cooling-Off Period begins. The Cooling-Off Period is in place from 10:00 hours to 10:05 hours, during which trading can occur within the price band i.e. at or between $0.81 and $0.99.
5.11 A buy market order comes in at 10:01 hours for five lots at $0.83, and a sell order for five lots at $0.83 is entered at 10:02 hours. This results in a matched trade for five lots of Security B at 10:02 hours.
5.12 The reference price immediately after the Cooling-Off Period ends at 10:05 hours is $0.82, reflecting the traded price five minutes ago just prior to the start of the Cooling-Off Period. At 10:07 hours, the reference price becomes $0.83, reflecting the traded price five minutes ago at 10:02 hours.
6. Exemption of new listings from circuit breaker
6.1 SGX-ST will exempt new listings from the circuit breaker on the first day of trading. This is because the offer price of a new listing may potentially differ significantly from market valuation. Applying the circuit breaker on the first day of trading may unnecessarily impede the price discovery process.
6.2 New listings refer to the following instruments that are newly listed, regardless of whether they are subject to an initial public offering or are placed out:
(b) Stapled securities;
(c) Real estate investment trusts:
(d) Business trusts;
(f) Exchange traded funds; and
(g) Exchange traded notes.
6.3 New listings will include stocks of companies that have been previously delisted but have gone through the listing process again.
6.4 New listings will also include stocks/units that are created by distribution of dividends in-specie.
6.5 New listings will not include any instruments that are created as a result of stock consolidation, stock splits and other similar actions that result in the replacement of existing counters. This is because the last traded price of the existing counters prior to delisting act as indicators that will allow market participants to adequately approximate the price of these new instruments. New listings will therefore also not include temporary odd-lot instruments that are created as a result of corporate actions or rights issues, and will also exclude schemes of arrangement.