Singapore Exchange Regulation is seeking feedback on potential changes to the auction mechanism in the securities market to prevent extreme price dislocations, the exchange said in a statement Monday.
The possible changes include:
- Implementing price collars to prevent matching of orders beyond a certain range. Orders that might match at prices outside the collar would not participate in the auction range, SGX said, adding the price collars would act as hard price limits on the matched auction price.
- Alternatively, the auction routine could be extended by a fixed period, such as five minutes, if the indicative opening price moves beyond a threshold, SGX said. The extension would allow market participants to analyse market conditions and review their orders, SGX said. That would allow participants to enter, modify or withdraw orders.
- Another option under consideration is a hybrid model, with time extensions applying for the opening and mid-day routines and a price collar on the closing routing, SGX said.
The securities market already has safeguards, including a “force key” function requiring participants entering orders at prices beyond prescribed ranges to take another step to confirm their order and dynamic circuit breakers, which act as speed bumps to moderate price movements, SGX said.
“We assessed each proposed mechanism and its potential impact on price discovery, stability of the market as well as on the downstream systems and processes of market participants,” Tan Boon Gin, CEO of SGX RegCo, said in the statement. “We recognize that additional safeguards can serve to complement market participants’ own internal controls, and would like to seek the markets’ feedback on the proposed enhancements.”
The consultation is open for feedback until 15 August.
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