Over 25 years of useless circuit breaker

Frequent interruption to trading stocks on the Jamaica Stock Exchange caused by the Circuit Breaker rule that shuts down activity in a company’s stock for an hour is frustrating for investors once the price moves by 15 percent or more from the closing price of the previous trading session.
Introduced by the JSE in the 1990s based on some investors’ complaints about large swings in the price movements of some stocks, the circuit breaker has not been effective in safeguarding investors’ interest by allowing information to flow to investors as to the reasons for sharp price movements. In place for more than 25 years, the mechanism serves no useful purpose, hinders trading and have not resulted in the presentation of new information for stocks so halted to justify stopping in trading.

In the past, this publication made suggestions to modify the system as it operates currently, to simplify it and allow for fewer losses in trading time for stocks subjected to the circuit breaker rule. There is no move by the JSE to implement changes since the price limit increase to 30 percent. It appears that the JSE does not seem to get it. It is better to improve what currently exists to help boost business rather than seeking other businesses.
If the rule is retained, keep it simple that all involved in the market can easily understand.
For example, if the maximum daily price movement is 30 percent, let that be the figure so that anyone can compute what it will be. There is no logic to state that prices can move by 30 percent, which happens in some cases and not in others. There should be no difference to the daily maximum price, whether it gets there in one movement or more than one. Currently, a 15 percent price movement triggers a re-computation of the maximum price of less than 30 percent. If a stock’s reference price starts the day at $10, then the day’s maximum price would be $3. Every investor can compute this. There is no reason to adjust the maximum if it trades initially at $12, with the maximum price for the day dropping to $12.65?
The second modification to the circuit breaker rule is reducing the time that stocks are frozen.  An hour break is far too long and prevents prices from moving above 15 percent within an hour of the market’s close.
If there is a need for the circuit breaker, why not break for 15 minutes instead of an hour so that trading can take place more freely. The Stock Exchange still has the power to halt trading in any stock or the market if they consider it prudent.
The Circuit Breaker rule. No stock should trade +/-15% from the close price or the effective close price at the market’s opening.  The effective close price is determined whenever the closing bid is greater than the close price or whenever the closing ask is less than the close price. If the Circuit Breaker is triggered, the security will be halted for an hour to allow for the release, circulation and absorption of any relevant market news and a cool-down period while investors consider their options. After the hour, the security will be released for trading and the new reference price, which is a simple average of the trigger price and the close price, will be used to determine the trading range for the remainder of the day.  The trade price that triggered the Circuit Breaker should not be +/-15% outside of the original prescribed price band. The stock will not be allowed to trade +/- 15% of the new reference price.

Express Catering trading fiasco

Ian Dear, Managing Director of Express Catering

The Jamaica Stock Exchange indicated that the maximum price Express Catering could trade at on Friday was $1.86 which came about from a 15 percent average, of the price that triggered the circuit breaker which is $1.75 and the IPO price of $1.50.
Had the first trade, taken place at $1.95 it would have shut down trading in the stock for an hour, but that price would have stood, being 30 percent above the IPO price.
Regardless, investors placed a large number of bids to acquire the stock which was heavily oversubscribed, when the shares were issued to the public. The attached picture shows the bids above $2.20 at the close which are expected to be cancelled, with the closing bids limited to $2 which is the indicative starting price on Monday. That price will determine the maximum price the stock can trade at on Monday. Something must be wrong if investors can place orders into the system only to see them manually cancelled by the exchange after trading ends. This development is public relations and bad news for the exchange, but not many persons seem to care.
The circuit breaker rule put in place to try and prevent wild daily movements in a stock prices seems to have out lived its life. It is not working well with new listings as it is preventing orderly trading in most new listings in the early days of trading.

All the above orders amounting millions of shares in Express Catering will be cancelled after trading on Friday

According to an extract sent by the Jamaica Stock Exchange the Circuit Breaker Rule states that “No stock should trade +/-15% from the close price or the effective close price at the opening of the market. The effective close price is determined whenever the closing bid is greater than the close price or whenever the closing ask is less than the close price. Use the closing bid as the effective close price, if the value is greater than the close price or use the closing ask as the effective close price, if the value is less than the close price. However, during the day if the Circuit Breaker is triggered for a security, the trades at prices outside of the original prescribed band for the security will be disallowed for an hour to allow for the release of market news and a cool down period. The price of the trade that triggered the Circuit Breaker should not be +/-15% outside of the original prescribed price band. After the hour has passed the security will be released for trading within a new prescribed price band based on the new reference price, which is a simple average of the trigger price and the close price. The new reference price will be used to determine the trade range for the remainder of the day. The stock will not be allowed to trade +/- 15% of the new reference price.”
If it is were conceded that there is need for a daily price limit, the above rules have been made more complex than needs be the case. There is no logic in limiting one stock to trade at a 30 percent above the last traded price or indicative price and another to be limited to a lesser amount on the same day because an investor buys a stock at 30 percent above the prior days last price another at 15.1 percent above it which limits the trading for the rest of the day to less than 30 percent in the latter case. The new rules that were approved by the stock exchange in 2014 made no reference to a limit to the bid or offer that can be made during the day, exchange personnel have decided amongst themselves to improperly invoke the additional change that limits trading unnecessarily. The stock exchange should make good sense prevail and allow the above rules to be implemented fully as stated without the introduction of rules that the updated regulations do not include and from all indications were not signed off by the stock exchange council, went the change was submitted for approval. If that is done, it would remove the nonsense that now prevails in the Express Catering trading, with a huge line up of bids above $2 that are slated to be cancelled after trading today.

4 juniors up 2 down on Tuesday

Kremi ice cont Activity on the Junior Market closed with 6 securities traded ending with 149,771 units changing hands valued at $179,558. The JSE Junior Market Index gained 4.29 points to close at 732.18, with the price of 4 stocks advancing and 2 declining.
Stocks trading in the junior market are, Access Financial Services traded 200 shares at $13.21, as the price eased 1 cent, Caribbean Cream closed trading with 10,000 shares, to end with a 5 cents decline at a new low of 60 cents. The stock was initially recorded as trading at 76 cents at the start of market, but that trade was eventually cancelled, as the price it attempted to trade at, was in excess of 15 percent initially permitted, effectively triggering the initial circuit breaker and thus the freeze.JM 14-4-15 Trading in the stock was suspended for an hour before it was permitted to trade again. At the close there was a bid to buy 47,000 units at 60 cents.Caribbean Producers traded only 100 shares at $2.40, Lasco Distributors saw 51,418 units changing hands at $1.40 to gain 3 cents, Lasco Financial Services had 84,053 units trading to close at $1.10, after gaining a cent, after trading as high as $1.15 and Lasco Manufacturing put through 4,000 shares at 1.06 to gain 1 cent.
The market closed with AMG Packaging having a bid for 41,000 shares to buy at $2.50, compared to a last sale of $2.26.

30% is New Circuit Breaker

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Marlene Street Forrest - General Manager of the JSE

Marlene Street Forrest – General Manager of the JSE

The final trading information for the Jamaican Stock market will show that Cable and Wireless did not trade on Friday, even as 264,000 units were put through at 37 cents per share. The trades were eventually cancelled.
At 37 cents, the price moved just over 15 percent, which is 0.20 cents from maximum of 36.80 cents possible. The stock exchange does not trade stocks in Jamaican dollars for fraction of a cent, do not round up the figures, in computing the 15 percent limitation. On Monday, the stock could not trade above 41 cents, which is 15 percent above Friday’s bid of 36 cents, even as there were investors prepared to buy above this level.
Later this month, could be as early as next week Monday, the 15 percent restriction will give way to a new regime of 30 percent in one day but in two tranches of 15 percent each, one hour apart. The rules will still permit the bid to exceed the closing price or the offer to fall below it at the close, thus permitting the stock to trade at more than 15 percent from the closing price, on the next day.
According to information from the Jamaica Stock Exchange, the new rule is as follows, “No stock should trade +/-15% from the close price or the effective close price at the opening of the market. The effective close price is determined whenever the closing bid is greater than the close price or whenever the closing ask is less than the close price. Use the closing bid as the effective close price, if the value is greater than the close price or use the closing ask as the effective close price, if the value is less than the close price. However, during the day if the Circuit Breaker is triggered for a security, the security will be halted for an hour to allow for the release, circulation and absorption of any relevant market news and a cool down period while investors consider their options. After the hour has passed the security will be released for trading and the new reference price, which is a simple average of the trigger price and the close price, will be used to determine the trade range for the remainder of the day. The price of the trade that triggered the Circuit Breaker should not be +/-15% outside of the original prescribed price band. The stock will not be allowed to trade +/- 15% of the new reference price.”
IC Insider spoke with the General Manager of the exchange who advises that the plan is to start as of Monday November 17th. But certain technical challenges with the trading platform could delay its implementation. Until the beginning of December.
The change came after investors were surveyed of the Stock exchange recently. The circuit breaker was implemented in the 1990s based on complaints by some investors about large swings in the price movements of some stocks, which was felt by some as manipulation of the market. The rule did not find favour with a number of the players in the market for several years.

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