PSX to Implement New Circuit Breakers in January 2020

Pakistan Stock Exchange has planned to start a circuit breaker in January 2020, which will help calm volatility after swings in its equity index rose to a two-year high in September, reported Bloomberg.

Securities and Exchange Commission of Pakistan’s (SECP) spokesperson, Musarat Jabeen told Bloomberg that trading at the stock market will be brought to a halt when the market capitalization-based KSE-30 index moves up or down by 4% during the trading session in a single trading day.

She said that the limit will be raised gradually to 5%. Caps on individual stocks will be widened to 7.5% in increments of 0.5%, from 5% at present.

Talking to a local media house, Jabeen said,

The increase will be made in a gradual manner i.e 0.5% every 15 days till it reaches the new upper limit. The application of the circuit breaker on the KSE-30 index was meant to prevent irrational price fluctuations, give the market a cooling period and provide the facility to brokers to deposit their margins.

Circuit breakers are measures approved by the Securities and Exchange Commissions to curb panic-selling in stock exchanges around the world. They temporarily halt trading when prices hit predefined levels.

“This strategy is a gradual approach – baby steps to help digest the entire process,” Sulaiman Mehdi, chairman of the Pakistan Stock Exchange Ltd., said in a separate interview with Bloomberg.

Pakistan has not been spared from the volatility hounding emerging markets this year. A gauge of 30-day historical volatility tied to the KSE-30 Index in September jumped to its highest since 2017, according to the data compiled by Bloomberg.

New Products

The stock exchange is also upgrading its trading platform and adding new products to boost liquidity, Mehdi told Bloomberg. UBL Fund Managers Ltd. plans to launch the nation’s first equity exchange-traded fund next month, while Bank Alfalah Ltd. and Faysal Bank Ltd. are planning the first bond ETF offerings, he said.

During his recent visit to China, Mehdi said several hedge funds were keen to invest in Pakistan’s stocks but are constrained by Chinese rules on capital flows.