SEC issues new directive on Index-Based Circuit Breakers

Monday, 4 May 2020 02:08 - - {{hitsCtrl.values.hits}}

Introduces Three Tiered Structure for S&P SL20 Index

The Securities and Exchange Commission of Sri Lanka (SEC) having taken in to consideration the prevailing market conditions has deemed it necessary to amend the current methodology pertaining to Index-Based Circuit Breakers by introducing a Three Tiered Circuit Breaker structure which is to be attached to the S&P SL20 Index.

In a directive the SEC said a Three-Tiered Circuit Breaker structure has been introduced in order to strengthen the capital market and ensure that precautionary measures are in place to eradicate distortion in the S&P SL20 Index.

The SEC move follows the indices of the CSE triggering the circuit breakers after crashing 5% multiple times prior to the market was suspended after 20 March in view of the curfew and social distancing measures to mitigate the spread of novel coronavirus (COVID-19).

The S&P SL 20 Index as of 20 March was down 33.69% year to date, a dip which was twice the amount from the week ended on 6 March. Following a similar fashion, the main All Share Price Index was down 25%.

Three Tiered Circuit Breaker Structure is as follows:

First Circuit Breaker – After commencement of trading of the Colombo Stock Exchange (CSE) for the day, a Market Halt to be imposed for 30 minutes in the event the S&P SL20 index drops by 5%

Second Circuit Breaker – Having recommenced trading after the cooling off period of 30 minutes following the S&P SL20 drop of 5%, if the S&P SL20 index drops again by another 2.5%, a Market Halt to be imposed for another 30 minutes

Third Circuit Breaker – Upon recommencing trading subsequent to cooling off period of 30 minutes following the S&P SL20 drop of 2.5% (altogether S&P SL20 has dropped by 7.5%) if the S&P SL20 index drops by a further 2.5% (S&P SL20 index has fallen altogether by 10% for the day), trading will be halted and the market shall be closed for the day

The SEC directed the CSE to implement the aforementioned Three Tiered Circuit Breaker structure.

The new circuit breaker mechanism will take effect from the date the market re-opens and remain in force until further notice notwithstanding anything to the contrary contained in the ATS or the CDS Rules of the CSE or any decision of the Board of Directors of the CSE that may have been taken in respect of market wide circuit breakers.

The CSE was also directed to inform all broker members and participants of the CDS forthwith of this directive.

SEC suggests CSE to explore digital trading and settlement

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