The Philippine Stock Exchange obtained the approval of the Securities and Exchange Commission to implement a three-level circuit breaker to protect investors and maintain order in the stock market during volatile trading conditions.
The PSE said in a statement the new circuit breaker rule is ready for implementation starting May 4 after successfully testing and completing the reconfigured trading platform.
The Level 1 circuit breaker will still be based on the original circuit breaker policy introduced in 2008, where a 15-minute market-wide halt is implemented when the Philippine Stock
Exchange Index drops by 10 percent from the previous trading session’s level.
The Level 2 circuit breaker is tripped when the PSEi falls 15 percent from the previous trading day’s closing level, calling for a 30-minute trading halt.
The Level 3 circuit breaker will be triggered and trading will be halted for one hour if the PSEi plunges by 20 percent from the previous trading session’s closing level.
“The adjustments are emergency measures necessary to protect investors and maintain order in the market,” said SEC chairperson Emilio Aquino.
“These will enable the PSE to better manage extraordinary volatility arising from fears over the COVID-19 pandemic,” he said.
The PSE said the circuit breaker levels could only be triggered once per trading day. In case the higher level is breached first, the lower level circuit breaker will no longer be triggered on that trading day.
The circuit breaker will not be triggered if the trading halt comes less than five minutes prior to the pre-close, which is presently at 12:45 p.m. For instance, the trading will not be halted if the PSEi declines 10 percent less than 20 minutes before the pre-close.
“We have seen unprecedented market volatility in reaction to uncertainties caused by the COVID-19 crisis. Our first step to address this volatility was to reduce the lower static threshold of securities from 50 percent to 30 percent. We followed this up with the addition of two circuit breaker levels to give the entire market a breather when these are triggered,” PSE president and chief executive Ramon Monzon said.
The previous single level circuit breaker has been tripped four times since it was adopted in September 2008. These occurred on October 27, 2008 and on March 12, 13, and 19, 2020.
The SEC earlier also approved the implementation of a revised static threshold for all securities effective to better manage extraordinary volatility in the market.
Trading in a security will be suspended when its price falls 30percent below its previous closing price. The 50 percent ceiling will remain to allow stock prices to recover to their optimal level.