SGX seeks price limits on stock auctions after $41 bln flash crash

SINGAPORE (Reuters) - Singapore Exchange's SGXL.SI regulatory unit is proposing imposing price limits for daily stock auctions to prevent incidents such as the $41 billion flash crash in January that briefly roiled shares in conglomerate Jardine Matheson JARD.SI.

FILE PHOTO: An SGX sign is pictured at Singapore Stock Exchange July 19, 2017. REUTERS/Edgar Su/File Photo

The proposed rules are the most significant for the securities market since the bourse introduced circuit breakers for the trading session five years ago, officials from SGX Regulation (SGX RegCo) told a news conference on Monday.

Currently, the bourse has no circuit breaks in auctions, during which brokers place buy and sell orders. SGX RegCo is seeking a 30 percent price cap for the opening auction and a 10 percent price cap for the midday and closing auctions.

“It’s a trade-off between effectiveness and price discovery essentially and we are always trying to balance between these two principles,” said Tan Boon Gin, chief executive of SGX RegCo.

Shares in Jardine Matheson, among the most valued Singapore-listed stocks, crashed 83 percent minutes after trading began on Jan. 24, wiping nearly $41 billion off its market value, before rebounding.

Some brokers involved in the transaction had requested SGX to amend or cancel these trades but SGX had said trading was orderly and it found no basis to cancel the transactions after a review.

“The circuit breakers are not available for auctions, so whatever we are proposing today is for auctions. Whatever happened in Jardine Matheson took place during the opening auction,” Tan said.

SGX RegCo officials said some price caps are already used by exchanges in Asia and the United States in daily auctions.

SGX RegCo is seeking an extension of the auction process and also considering a hybrid model, where time extensions will apply for the opening and mid-day auctions while a price cap will be applied on the closing auction.

Public consultation for the proposals ends on Aug.15 and they could come into effect next year, officials said.

Reporting by Anshuman Daga; Editing by Jacqueline Wong & Shri Navaratnam