PSX initiates process to enhance circuit breakers to 10 percent

KARACHI: Pakistan Stock Exchange (PSX) is initiating consultation with the stakeholders as it plans to further enhance the circuit breakers to 10 percent from 7.5 percent and implement second level of index based market halt.
“In order to move forward, the PSX is exploring the possibility of further enhancement in the Circuit Breakers from the existing 7.5 to 10 percent in a phased manner along with the introduction of the second level of index-based market halt at 7.0 percent,” PSX said in a notice to shareholders.
Managing Director PSX Farrukh Khan said the process would take few weeks as the proposal would need to be approved by PSX Board and then Securities and Exchange Commission of Pakistan.
“Market going up or down, the traders should be able to trade. Enhanced circuit breakers ensure better price discovery, and give genuine sellers chance to exit”.
He said the time circuit breakers were implemented, it was the plan all along increase them over time.
Enhancement of scrip based circuit breakers was implemented in a phased manner along with the introduction of an index-based market halt in January 2020.
Circuit breakers were enhanced from 5 to 7.5 percent and the market halt was implemented based on KSE 30 Index movement, initially at 4.0 percent, which then increased to 5.0 percent.
“Enhancement of circuit breakers is a sign of developing market, but it can increase riskyness. Leveraged retail investor can gain and lose easily,” Arsalan Soomro of KASB Securities said in a comment.
According to PSX proposal, circuit breakers will increase 0.5 percent after every two weeks and once the level of 10 percent is reached, the second level of market halt will be implemented upon 7.0 percent movement of KSE 30 Index.
“This implementation contributed to overall discipline in the market and so as an improvement in the trading volume as a result of enhancing the day’s price range,” PSX said. “Furthermore, this implementation is well aligned with the Global practices with an added benefit of better price discovery”.
Khurram Scehzad at Alpha Beta Core said this would be a good move and in the right direction, giving room to investors to buy/sell more in a single day, while helping a stock/index achieve better price discovery.
“It is good that the PSX is gradually adopting best global practices prevalent in financial markets.
However, like it is in some of the neighbouring countries, CBs should not be for the entire day, but for some hours or a limited period within a day, so investors should get have multiple chances to buy/sell stocks in a day while price discovery remains reasonable,” Scehzad said.
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