The Singapore Exchange (SGX) will begin using circuit breakers in the securities markets starting Feb 24, after a sudden plunge in the shares of three listed companies wiped out $8 billion in value last October.
These trading curbs are aimed at reducing wild swings in stock prices. They will kick in to limit trading in a particular stock for a period of time if it has surged or dropped substantially in value.
Describing the move as an "additional market safeguard", the SGX said the circuit breakers will initially apply to all securities priced at 50 cents and above, as well as all stocks on the Straits Times Index and MSCI Singapore Index.
This will include stapled securities, funds, exchange traded funds, exchange traded notes and extended settlement contracts, Southeast Asia's largest bourse said in a statement on Wednesday.
Together, these securities account for about 80 per cent of trading on Singapore's stock market.
The SGX said the circuit breakers will be triggered when a stock jumps or drops more than 10 per cent in value within five minutes.
A five-minute cooling-off period will follow, in which trades can only take place at a price of within 10 per cent in either direction from the reference price of the stock, defined as the last traded price before the circuit breaker took effect.
After that, trading will resume with a new reference price established during the cooling-off period.
Calls for circuit breakers on the Singapore bourse intensified after three commodities companies - Blumont Group, Asiasons Capital and LionGold Corp - each saw their share prices dive about 90 per cent over three days in October last year.
The SGX also said on Wednesday that it would revise its error trade policy from Feb 24. For all securities except bonds, trades will not be cancelled if the transacted price falls within a price range of 5 per cent from the last traded price.
For structured warrants, the price range will be 25 per cent from the last traded price. For bonds, any error trade will be eligible for review.
"The introduction of circuit breakers and the new error trade policy will assure investors of continued safety and transparency even under volatile market conditions," said Mr Muthukrishnan Ramaswami, the president of SGX.
"The implementation of these two initiatives will complement our existing safeguards in support of a fair, orderly and transparent market," he added.