NSE MOVES AGAINST VOLATILITY

The Nigerian stock exchange has finally come up with explanatory guidelines on the trading circuit breaker it introduced to the market since January 15, this year.
It is intended to halt trading on the floor where there is extraordinary price activity either way at the market but until February 16 it was like a maze to many.
In the interpretative guidelines circuit breaker is defined as " trading halt used by exchanges to guide against sharp fluctuations on the market"
" It is designed" says the NSE. " to give market an opportunity to take a break and adjust to all available information" before the market reopens; " protect against excessive volatility during continuous trading sessions..." and " provide opportunity for information dissemination and assimilation to all market participants including investors to facilitate better informed investment decision making during periods of high market volatility"
The threshold of what constitutes high volatility is to be determined by the NSE from time to time and presently the breaker will occur in two triggers: when the NSE All share index changes by 5% on previous day trading close then when it changes again by another 5% in the same direction.
This is provided that they occur between 10.15am and 13.45pm during trading day. No halt will occur if the extraordinary move occurs after 13.45pm.
Once the first 5% change occurs, trading across the equities market will be halted for 30 minutes. After the first 15 minutes, the NSE will notify all that the market reopens in 15 minutes.
Then after reopening, if a further 5% change should occur in the same direction, the market this time will close for the day.
Trading halts will not affect clearing, settlement and depository operations for trades already matched before the halt while during the halt, existing orders will remain, existing orders can be cancelled or deactivated by brokers but can not be amended. In addition no new orders can be entered until the market reopens.
The NSE explained that the circuit breaker rule is being implemented consistently with procedures prescribed by World Federation of Exchanges in its 2008 report on circuit breakers and by the International Organisation of Securities Commissions in its 2002 report on trading halts and market closure.
In a nutshell, added the NSE, the circuit breaker rule is intended to " maintain an orderly market. ... To dampen "extraordinary swings in prices by providing time to restore equilibrium between buyers and sellers" It will be triggered by both extraordinary upswings and downswings in prices across the market.

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