PSX awaits regulatory approvals to increase trading halt ceiling

KARACHI: Pakistan Stock Exchange (PSX) is awaiting regulatory approvals to revise up circuit breakers – a measure to temporarily halt trading – to 10 percent from existing 7.5 percent in a phased manner, its managing director said on Wednesday.

PSX Managing Director Farrukh Khan told The News the process would take a few weeks as the proposal would need to be approved by PSX board and Securities and Exchange Commission of Pakistan.

“[Whether] the market is going up or down, the traders should be able to trade,” said Khan. “Enhanced circuit breakers ensure better price discovery, and give sellers a chance to exit.”

Circuit breakers halt trading in case of a dramatic drop. Currently, it is set at 7.5 percent of the closing price for the previous day.

The PSX said it 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 percent.

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 percent movement of KSE 30 Index, according to PSX proposal.

“This implementation contributes to overall discipline in the market and an improvement in the trading volume as a result of enhancing the day’s price range,” the PSX said in a notice. “Furthermore, this implementation is well aligned with the global practices with an added benefit of better price discovery.”

Analyst Arsalan Soomro at KASB Securities said increase in circuit breakers is a sign of developing market and it can increase risk. “Leveraged retail investor can gain and lose easily,” he said.

Analyst Khurram Scehzad at Alpha Beta Core said this would be a good move 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,” he said. “However, like it is in some of the neighbouring countries, circuit breakers 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.”

Enhancement of scrip based circuit breakers was implemented in a phased manner along with the introduction of an index-based market halt in January.

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 percent, which then increased to 5 percent.