Not established in China stock market circuit breakers, price limits. CFP information
The evening of September 6, the Commission openly to develop implementation programme index circuit breakers.
Circuit breakers, in simple terms, refers to the stock market when price fluctuation levels provided for in touch, trading stops for some time the mechanism. Circuit breakers the main purpose is to give the market a cooling off period, was fully digested by investors market and prevent swings in market or a product of irrational, to prevent the market fell sharply and even crash in order to maintain market stability.
The World sample
Global capital markets, fusing mechanisms generally exist.
According to United States the latest regulations of the SEC, when the poor’s index fell in a short time reached 7%, the United States all stock market transactions will be suspended for 15 minutes, the so-called “circuit breakers”.
“Circuit breakers” are divided into three levels: the first level to drop 7%, second-tier drop 13%, the third is 20%. In between 9:30 A.M. to 3:25 P.M., triggering the first-or second-level circuit breakers, trading will be suspended for 15 minutes triggered a third-level circuit breakers, trading will be suspended on the day.
In addition to the above the market’s circuit breakers, United States SEC stock also has a “limit price fluctuation limits” mechanism, where prices rise by more than 15 seconds 5%, suspended stock trading for 5 minutes, but the opening and closing price, price less than $ 3 a share price fluctuations in space can be extended to 10%.
United States existing fuse mechanisms can be traced back to the birth of October 19, 1987, stock markets around the world plunged, also known as “Black Monday”, the Dow 22.61%.
France, and Japan, and Korea and other countries also use the fusing mechanism.
On foreign exchanges, “fusing” system comes in two forms, namely “melt off” with “melt”. After the former is when prices hit circuit breakers, and then stopped trading for some time; the latter is when prices after hitting a circuit breakers, then over a period of time can continue to trade, but offer limited within the circuit breakers.
Singapore Exchange began in February 2014 stock market circuit breakers imposed belongs to the latter category, a move designed to when the mass turmoil in stock markets, and protect the interests of investors. SGX announcement, circuit breakers will apply to about Singapore stocks trading 80% ‘s securities, including the Straits Times index and the Morgan Stanley Singapore index component stocks.
Four major benefits
Benefits of fusing mechanisms are clear. Comprehensive industry point of view are the following: Up position–what is index circuit breakers? PLM for a-shares breaks?
Is on the market for trading risk warning system, effectively preventing the risk of sudden onset and severity of risk. Took domestic index futures for, in market fluctuations reached 10% of were mixed stopped Board zhiqian, introduced has a 6% of fuse points, that index futures of refers to points rose decreases reached 6%, that in thereafter of 10 minutes trading in index quotes cannot beyond fuse points zhiwai, this not only to index futures of trading who proposed has a warning, also for futures trading of levels risk management proposed has a warning.
Second, for control risks won the think time and operating time. In fuse issue, investors have plenty of time to avoid an emotional transaction, reduced risk of the stampede.
Third, help eliminate stale price resulting in decreased liquidity in the futures market. Abnormal fluctuations appear, a large number of orders will result in a system clogged. With fuse, you can eliminate the instruction block trading system.
Four is to gradually solve the risk in trading provides a guarantee on the system. When an exception is the extreme market fluctuations occur, no market for circuit breakers will rampage, usually takes several months or even a year of volatility at the moment complete, this fight will be in the wrong direction traders by surprise, 1 time or even several times that of margin accounts were quickly penetrated, this will increase the difficulty of clearing and countless disputes.
United States stock market last start fusing mechanisms in August 24, 2015, the same day, United States Dow Jones, standard and poor’s and NASDAQ’s three tumbling when trading stock index futures before the market opened, triggered “circuit breakers”, was suspended from trading. US stocks after the formal opening, the three major indexes fell sharply, but does not trigger this mechanism again, pared to around 4%, to avoid the further deterioration of the market.
What is going on in China
Not established in China stock market circuit breakers, price limits. Exchanges in Shanghai and Shenzhen stock exchanges is a 10% price limit and each stock transaction limit orders are “price cage” (compared with the current market price of price variation limits), the market order would only eat the current price list up to five.
Some scholars and experts have called for the introduction of circuit breakers, but when Exchange believes that on the premise of market and stock price have been limited, role of circuit breakers may be limited. Seen from the outside, the stock market on a price limit and market circuit breakers, is generally to use either while using less of these two mechanisms.
However, Exchange also admits that, from the perspective of to provide a cooling off period for the market to digest information, circuit breakers have a role, to further research and demonstration.
However, in recent months, the a-share market huge shaking gradually became the norm, change 6% above are not unusual, and therefore once again calls for the fusing mechanism introduced in the industry.
La cite noble, futures financial Assistant Cheng Xiaoyong, Director of the Institute had told the media that, if the introduction of circuit breakers, which is curbing excessive investment and market panic, leading investors reason, limits prices too far from, reduce the chance of outbreak of the stock market crash has been a big help.
Cheng Xiaoyong is think, fuse mechanism is a suspended trading of buffer mechanism, continued time after can continues to trading, and were mixed stopped Board system is is seal died zhihou, can’t continues to unilateral sold; fuse mechanism has two species way: thaw and constantly and thaw and broken, and were mixed stopped Board is completely broken has, only anti-direction orders only may sold; fuse mechanism relative flexible, and were mixed stopped Board index relative rigid, not conducive to trading of continuity.
However, insiders believe that disadvantages of circuit breakers is to suspend the deal, this is a direct intervention in the market may further affect the freedom of the market, this also should be considered.
East Buzz 