KLSE Deputy President II Y.M. Ungku A. Razak Ungku A. Rahman said one of the many beneficial objectives of the circuit breaker is a broader-based approach in addressing excessive volatility in the stockmarket.
"In providing a market-wide approach to manage the downward movement of the barometer index by halting trading temporarily, the circuit breaker provides the opportunity for greater information dissemination for all market participants to make well-considered investment decisions," he said at the media briefing on the circuit breaker.
The circuit breaker is targeted for implementation by the first quarter of 2002. The implementation of the circuit breaker at KLSE was announced in the recent National Budget 2002 as part of the effort to ensure stability in the stockmarket. The budget announcement on the circuit breaker mentioned that the circuit breaker has the capacity to halt trading activities temporarily when large declines are experienced during a trading day. These halts are based on pre-determined trigger levels.
In his briefing, Ungku Razak said the circuit breaker will be triggered when the KLSE Composite Index (KLSE CI) declines below its closing index of the previous market day by 10%, 15% and 20%.
The circuit breaker will be triggered under the following conditions:
- If KLSE CI falls by more than 10% but less than 15% of the previous market day's closing index, Trading is halted for 1 hour if Circuit Breaker is triggered before 11:15 am or 3:45 pm. Trading is halted for the rest of the trading session if Circuit Breaker is triggered at or after 11:15 am or 3:45 pm.
- If KLSE CI falls by an aggregate of, or to more than, 15% but less than 20% of the previous market day's closing index, Trading is halted for 1 hour if Circuit Breaker is triggered before 11:15 am or 3:45 pm. Trading is halted for the rest of the trading session if Circuit Breaker is triggered at or after 11:15 am or 3:45 pm.
- If KLSE CI falls by an aggregate of, or to more than, 20% of the previous market day's closing index, Trading is halted for the rest of the day.
"This finding is supported by a study of KLSE CI movements over a period of time that included instances of a sudden and sustained decline in the KLSE CI. The study also included a comparative review of international best practice in effecting circuit breakers in other exchanges," he said.
KLSE Executive Chairman Dato' Mohd Azlan Hashim said the implementation of the circuit breaker will have a beneficial impact in times of uncertain external influences on the stockmarket.
"The circuit breaker will enhance the tools available to the stock exchange to ensure orderly and fair market, whilst providing the opportunity for greater dissemination of information. This will assist market participants and investors to make informed and well-considered decisions on their investments," he said.
Deputy Chairman of KLSE and Chairperson, Association of Stockbroking Companies Malaysia Datuk Mohaiyani Shamsuddin said circuit breakers will allow the market time to find an equilibrium as markets worldwide always have a tendency to overshoot or underperform in times of uncertainty.
"For stockbroking companies and investors, the circuit breaker will provide an opportunity for stability and maximum dissemination of information for all market participants. In this way, the benefits of a steadily progressive securities market will be sustained," she said.
Chairman of Hwang DBS Malaysia Bhd, Dato' Hwang Sing Lue said as a mechanism to moderate excessive volatility, the circuit breaker will mitigate against excessive speculation, and therefore excessive potential losses.
"With the circuit breaker in place, investors will now have a greater opportunity to reassess their market positions especially in times of excessive volatility," he said.
