By NKIRUKA NNOROM
The Nigerian Stock Exchange, NSE, has revealed plans to introduce a market-wide rule that will simultaneously halt price movement in all the listed equities for at least 30 minutes in event of extra-ordinary market volatility.
The new rule, index circuit breaker, according to a notice posted on the NSE’s website signed by Tinuade Awe, Head, Legal and Regulation Division, would be triggered by over five percent downward movement in the All Share Index, ASI.
She observed that the period of the halt would allow the operators the opportunity to assess a serious market decline and express their trading interest with relatively little disruption to the market.
Awe noted that introduction of the market-wide index circuit breaker was necessary following the recent bearish trends in the market and the need to provide for an orderly and efficient market.
She said, “Recently, the market declined by 3.88 percent, which was the largest single day decline since the 5.89 percent decline in 2011.
“The Exchange believes that the rule is relevant, meaningful and effective in today’s high-speed electronic securities markets and given the highly-automated nature of today’s markets and improvement in connectivity.”
She continued, “In 2008, during the market meltdown, the market declined by over nine percent in one day; Management is of the view that should the market decline by a further five percent after an initial index circuit breaker trigger of five percent, (for a total of 10 percent) the market should be closed for the day.
“A 10 percent market-wide move is highly unusual in this market, and time should be given for the market to recollect itself before opening the next day.”
Awe explained that the objective of the rule is to promote just and equitable principles of trade, remove impediments to and improve the mechanism of a free and open market in order to protect investors and the public interest. “It is expected that triggering of the index circuit breakers will be a relatively rare event that will address severe market declines and enable stabilisation in the market. In view of the short duration of their intervention, the circuit breakers should still be able to accomplish their goal,” Awe stated.