Singapore Exchange plans to introduce price collars during the market’s opening, midday and closing auction routines to minimize the risk of severe price movements during price setting, the exchange said in a statement Thursday.
The price collars, or bands, would be 30 percent higher or lower than the reference price for the opening auction, and 10 percent for the midday break and closing auctions, SGX said.
The reference price for the opening auction is the last traded price on the previous trading day, while the midday break and closing auction reference price is the last traded price on the same market day, SGX said.
The price collars will apply to all constituents of the Straits Times and MSCI Singapore Indexes, and on stocks, REITs, business trusts and exchange-traded funds with prices of at least S$0.50, SGX said.
The decision to implement a price collar system followed support from a majority of the respondents to a public consultation which had considered price collars, time extensions and a hybrid of the two, SGX said. The price collar was considered more comprehensible, easier to implement and more cost effective, SGX said.
The new auction method may not be implemented soon: SGX said some of the respondents gave preliminary estimates of up to 18 months for implementing a price collar amid the need for testing and development work.
In the meantime, SGX said it would use enhanced monitoring, including reviewing any opening auction trade in index component stocks which is more than 30 percent away from the previous day’s close.
“SGX may exercise its discretion to cancel such trades in the interest of upholding the integrity of the market, such as in cases where the price movement is not explained by underlying market reasons,” the statement said.
The exchange would inform the market the trades were under review within five minutes of the market open, it said.