Circuit Breaker rule could be changed soon

After years of clamouring for a change investors may see some modification of the existing circuit breaker rule that prevents the value of any one stock from changing more than 15 percent from the closing value of the previous day. The JSE management is proposing that the 15 percent limit be moved to 30 percent and that the freeze would be for an hour.According to our sources, the Exchange is proposing a move towards an intra-day setting of the circuit breaker which allows a ‘cooling off’ of the market in transactions of that particular stock, but does not prevent the stock from trading again within the day, at a prescribed level. This change should provide investors with a more liquid market and a by-product would, be increased level of transactions that would be of benefit for the entire industry.The stock exchange board has not yet signed off on the proposal which could undergo further modification if implemented.
Many investors have expressed dislike for the circuit breaker as they see it as impeding trading which it does. While the Jamaica Stock exchange has stuck to the current system, Barbados moved a few years ago to a more flexible one in which there is a break for a limited time so that brokers can make contact with their clients who may want to buy or sell as the case may be and trading in the stock resumes.
The Jamaica Stock Exchange introduced a circuit breaker rule in the 1990s sometime in an attempt to moderate price movements of a stock each trading day. While some persons will indicate that it is 15 percent above or below the closing price of a stock, in reality while that is the primary basis the rule allows for it to be the lower or higher of the bid or asking prices where these are higher of lower than the sale price. An illustration will help. If stock “A” sold at $10, but the offer was $10 or more and the bid is $10 or lower, then the maximum price movement permitted the next day would be 15 percent or $1.50. If however, the closing bid was $12 then the stock can trade the next day up to $13.80 or $1.80 or 15 percent above the bid or $3.80 which would be 38 percent above the last traded price. The reverse would be true, if the offer was lower than the last selling price of $10.