The potential for a prolonged tariff war between the world’s two largest economies is putting Asia’s rarely used trading halt mechanisms in focus, underscoring rising volatility.
Most markets across the region have a circuit breaker in place to temporarily halt trading if shares fall or rise more than a certain percentage. The panic selling seen on Monday triggered such controls in Japanese equity futures and South Korean contracts, while Indonesian stocks faced similar measures as trading resumed on Tuesday.
Here’s a look at trading halt guidelines across the region and what’s been triggered so far:
Japan
Trading of the Nikkei 225 and Topix futures was briefly suspended on Monday as a circuit breaker was triggered due to a glut of sell orders.
Japanese cash markets do not have circuit breakers, but the Japan Exchange Group has rules in place for index futures and options. In the case where a circuit breaker is triggered, trading will be halted and the price limit range will be expanded.
For index futures, only price limits in one direction will be expanded. For index options, both the upper and lower limits will be expanded.
Here’s a summary of a few of the major asset classes:
South Korea
South Korea’s equity benchmark and the tech-heavy Kosdaq index halt trading in their members if the gauges plunge by 8% or more.
Separately, the bourse puts a so-called “sidecar” rule on Kospi futures, halting orders for selling or buying futures in program trading and halting the Kospi 200 Index futures if contracts fall or rise 5% or more.
South Korea briefly halted sell orders on Monday for program trading after Kospi 200 futures plunged 6.8%. “Sidecar” was triggered and the validity of program trading sell orders was suspended for 5 minutes.
Indonesia
Indonesian stocks’ 9.2% slump in early trading on Tuesday post-holiday triggered a 30-minute halt. The bourse earlier pre-empted a trading halt if the Jakarta Composite Index falls by 8% on the reopen. Previously, trading halt for the market is imposed when the JCI falls by 5%.
There will be another 30-minute halt if the fall continues to more than 15%, the bourse said in a statement, and will move to suspend the day’s trading if the JCI drops by more than 20%.
Thailand
Thailand’s bourse will halt trading in all listed securities by 30 minutes if the equity benchmark falls by 8%, and another 30 minutes if the drop extends to 15%. In the case the SET Index falls by 20%, trading will stop for one hour.
After the third stage, the SET will continue matching orders until the session closes with no more halts.
If the trading time remaining in a session is less than 30 minutes or one hour after the circuit breaker comes into effect, trading will be halted until the close, and then resume in the next session.
India
Indian exchanges have a circuit breaker system that is activated at three levels of index movement: 10%, 15% and 20%.
When triggered, trading in all equity and equity derivative markets nationwide will be halted. For a 10% movement, the market halts for 45 minutes if it occurs before 1 p.m., 15 minutes between 1 p.m. and 2:30 p.m., and continues without a halt after 2:30 p.m.
A 15% movement results in a 1 hour and 45-minute halt before 1 p.m., 45 minutes between 1 p.m. and 2 p.m. If the move happens post 2 p.m., trading will be halted for the rest of the day.
A 20% movement will lead to an immediate halt for the rest of the trading day.
Australia
The Australian Securities Exchange doesn’t have circuit breakers like those employed by other markets. The bourse relies on a mechanism that calculates reference prices for all stocks every minute and prevents the placing of aggressive orders.
It will also pause trading in individual equities for two minutes if the price triggers an extreme trade range, which is unique for every stock.
All ASX equity, fixed income and derivative markets remain fully operational and open during regular trading hours.
ASX believes its mechanism promotes orderliness by striking a balance between restricting large and sudden price movements, while allowing natural market forces to guide trading, said a spokesperson for the exchange.
New Zealand
The NZX setup is similar to arrangements in place in Australia. While the bourse does not have any formal circuit breakers for indexes, it places some trading halts for individual securities. The shares are subject to tiered trigger points, depending on a security’s prevailing market price.
Still, NZX retains full discretion under its market rules to place one or more of its markets into a trading halt or suspended state.
Malaysia
The FTSE Bursa Malaysia KLCI Index has various circuit-breaker levels in place for different periods, depending on the time of day and size of the decline. The first trigger level is a drop of at least 10% from the previous close, with additional levels at 15% and 20%.
Singapore
The Singapore Exchange has a cooling-off system in place that applies for stocks and other securities of 0.50 or more in the underlying currency. The circuit breaker triggers a five-minute cooling-off period if a trade is attempted outside the price band of +/-10%. During that time, trading may continue within the band but orders outside the range will be rejected. At the end of the period, the upper and lower thresholds are adjusted and trading continues.
Philippines
Starting in 2020, the Philippines implemented a three-tier circuit breaker for the benchmark stock index. A 10% drop of the main gauge will result in a 15-minute circuit break, a further drop to 15% will necessitate a 30-minute break and a 20% decline will result in a one-hour break.
--With assistance from Neil Jerome Morales, Eduard Gismatullin, John Cheng, Momoka Yokoyama, Hideyuki Sano, Ashutosh Joshi, Youkyung Lee and Jackie Edwards.
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