SFC backs consultation on circuit breakers

PUBLISHED : Monday, 27 January, 2014, 4:23am
UPDATED : Monday, 27 January, 2014, 4:23am

The Securities and Futures Commission backs the stock exchange's move to study whether circuit breakers are needed to protect the market from sharp price movements.

SFC executive director Keith Lui told the South China Morning Post that such control measures would put the city in line with international practice.

"Many international firms in the city have operations overseas where they have a circuit breaker system. I do not think they would have a problem if Hong Kong were to have a similar system," Lui said. "However, any circuit breaker system must first require a public consultation."

He said the SFC would support any such consultation by Hong Kong Exchanges and Clearing.

The stock exchange has set up a working group to study the concept, which would see trading halted if a stock surged or fell by a set limit.

Lui said many markets, such as the US and mainland, had introduced circuit breakers to counter risks from a range of sources including trading errors.

Singapore plans to introduce circuit breakers this year after a plunge in the shares of three companies in October erased US$6.9 billion from the market over three days.

HKEx first proposed the system in 2004 but ran into opposition from the market. Lui said the challenge in introducing such a system lay in what controls to set.

Under Singapore's proposal, trading in a stock would be suspended for five minutes if it goes up or down by 10 per cent - the limit for trading in mainland stocks.

US exchanges introduced circuit breakers after the "flash crash" of May 2010 that wiped US$862 billion off the value of equities within minutes.