Opponents point out a rash of suspensions in the Macau-concept boom could have sparked panic The stock exchange has abandoned a plan to introduce automatic trading suspension mechanisms - a 'circuit-breaker' system - amid concern they could fuel chaos rather than impose stability. Opponents of the plan noted that during the present 'Macau concept' boom, several companies might have triggered trading suspensions simultaneously, freezing large sums of capital and perhaps provoking panic. Hong Kong Exchanges and Clearing chief executive Paul Chow Man-yiu confirmed that an industry consultation showed significant opposition to a circuit-breaker system, which had been proposed in reaction to the rapid collapse of Far East Pharmaceutical Technology and other stocks earlier this year. 'There are grave concerns that the circuit-breaker system, if introduced, could lead to substantial number of companies being suspended at the same time,' Mr Chow said. 'The recent volatility in the Macau concept stock rally may well have led to more than 50 stocks being under suspension at the same time. 'Such a massive suspension may lead to more chaotic scenes in the market and would damage the Hong Kong market's image as a free market without intervention,' Mr Chow said. After Far East Pharmaceutical plunged 92 per cent in a single trading day in June, the stock exchange launched a study and informal industry consultation in June, proposing a circuit-breaker system that would trigger suspension of trading in individual stocks, or even the entire market, when prices fell by a set percentage. Such mechanisms are in place in several global equity markets, including those in the United States, the mainland, Taiwan and Japan. Support for the system was boosted by the collapse of B&S Entertainment Holdings in August and the astonishing 95 per cent drop in just 20 minutes of South Sea Holdings in September. Some brokers had argued that circuit breakers would curb the spread of the panic factor by giving time for more complete information to reach the market and for cooler heads to prevail. But Mr Chow said the most striking collapses this year were related to majority shareholders facing margin calls on loans backed with shares as collateral, leaving the minority shareholders - who had no prior knowledge that shares had been pledged - with no time to sell their holdings. This problem could be addressed, he said, by requiring major shareholders of listed companies to disclose any pledges made to secure bank loans. As the Securities and Futures Commission had agreed to consult the market on this proposal, the circuit-breaker system may prove unnecessary. 'The proposed share-pledge disclosure rule would enhance the transparency of the market,' he said. Mr Chow also pointed out that other markets such as Taiwan were considering scrapping their circuit-breaker systems. 'There is little point in adopting a system which has lost its popularity in other parts of the world.' He also said that even without the circuit breaker, the exchange would continue its current policy of suspending companies on a case by case basis, especially if stocks displayed unusual market movements without satisfactory explanation from company managers.