One of the beneficial objectives of the Circuit Breaker is a broader-based approach in addressing excessive downward movement in the stockmarket. KLSE had announced on 24 October 2001 that the Circuit Breaker is targeted for implementation by the first quarter of 2002.
This was consequent to the National Budget 2002 announcement for the implementation of the Circuit Breaker as part of the effort to ensure greater stability in the stockmarket. The budget announcement on the Circuit Breaker proposed that the Circuit Breaker mechanism should have the capacity to halt trading activities temporarily when large declines are experienced during a trading day.
Deputy President, Strategy and Development Encik Abdul Hamid Sh. Mohamed said in meeting the deadline for Circuit Breaker, KLSE has taken into account industry readiness for its implementation.
"KLSE has undertaken various testing and simulations with relevant industry participants over a 5-month period which among others covered key functions of the Circuit Breaker in the areas of trigger level alerts and halting mechanism.
"In consultation with Securities Commission and following an industry readiness review audit, it has been found that there is a high degree of readiness amongst industry participants for the implementation of the Circuit Breaker," he said.
The Circuit Breaker halts are based on pre-determined trigger levels and will be triggered under the following conditions:
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KLSE
CI
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Trading
Halt
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| 1 | 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 a.m. or 3.45 p.m. | Trading is halted for the rest of the trading session if Circuit Breaker is triggered at or after 11.15 a.m. or 3.45 p.m. |
| 2 | 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 a.m. or 3.45 p.m. | Trading is halted for the rest of the trading session if Circuit Breaker is triggered at or after 11:15 a.m. or 3:45 p.m. |
| 3 | 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. | |
The trigger levels and trading halts of the Circuit Breaker will also apply for equity linked derivatives product on the Malaysia Derivatives Exchange (MDEX).
The trigger levels ascertained for the Circuit Breaker have been determined based on various research, testing and consultations. These trigger levels for the Circuit Breaker have been found to be most appropriate in meeting the objective of addressing excessive market decline.
This finding is further supported by a study of KLSE CI movements over a period of time that included instances of 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.
Stockbroking member companies and relevant industry participants have been informed on the implementation date of the Circuit Breaker via KLSE circulars.
Details and frequently asked questions on the Circuit Breaker is available at www.klse.com.my.
