Bursa Malaysia introduced the Circuit Breaker with an aim to stabile market volatility and to decide whether trading is to be put on hold temporarily or to be stopped entirely. This indirectly enhances investor confidence.
The main benefit of the Circuit Breaker is to provide the opportunity for greater information dissemination for all market participants, including investors, to make well-considered investment decisions.
A Circuit Breaker is a market-wide approach to managing downward movement of the barometer index by halting trading temporarily in the entire market during normal trading hours, during which time information is disseminated to all market participants.
The circuit breaker will be triggered when the FTSE based Composite Index (FBMKLCI) declines 10%, 15% and 20% below its closing index of the previous market day and also under these following conditions
|Bursa Malaysia Circuit Breaker Trigger Levels/ Conditions And Trading Halt Duration|
|Trigger Level||FBMKLCI Decline||From 9:00 am– before 11:15 am||From 11:15 am to 12:30 pm||From 2:30 pm – before 3:30 pm||From 3:30 pm to 5:00 pm|
|1||FBMKLCI falls by an aggregate of 10% or more but less than 15% of the previous market day's closing index.||1 Hour||Rest of Trading Session||1 Hour||Rest of Trading Session|
|2||FBMKLCI falls by an aggregate of or to more than 15% but less than 20% of the previous market day's closing index.||1 Hour||Rest of Trading Session||1 Hour||Rest of Trading Session|
|3||FBMKLCI falls by an aggregate of or to more than 20% of the previous market day's closing index||9.00 a.m. - 12.30 p.m.||2.30 p.m. - 5.00 p.m.|
|Rest of Trading Day||Rest of Trading Day|
Trading on Bursa Malaysia is done in two (2) trading sessions from 9.00 a.m. to 12.30 p.m. (morning session) and from 2.30 p.m. to 5.00 p.m. (afternoon session).
This finding is supported by a study of FBMKLCI movements over a period of time that included instances of a sudden and sustained decline in the FBMKLCI and a comparative study of international best practices in effecting circuit breakers in other exchanges.
The trigger levels decided for the Circuit Breaker have been found to be the most effective in meeting the objective of addressing excessive market volatility.
This finding is supported by a study of FBMKLCI movements over a period of time that included instances of a sudden and sustained decline in the FBMKLCI and a comparative study of international best practices in effecting Circuit Breakers in other exchanges.
There are three (3) trigger levels for the Circuit Breaker which are based on a 10%, 15% and 20% decline of the FBMKLCI from the previous market day's closing index. The following example illustrates how the trigger levels are calculated.
Assuming the closing index of the FBMKLCI on 30 July is 600 points. The Circuit Breaker trigger levels for 31 July will then be calculated based on the 30 July closing index using the predetermined percentage levels of 10%, 15% and 20% for each trigger level. The resulting index levels derived from the calculation will then be the effective trigger levels for the day (31 July).
Once the FBMKLCI declines by the respective trigger levels, trading on the stock market will be halted temporarily.
Table 1: Assuming the previous market day's closing index is 600 points.
|Trigger Level and Percentage||Index Points Decline||FBMKLCI Circuit Breaker Threshold||Trading Halt Duration|
|Level 1 - 10%||60||540 points||1 hour|
|Level 2 - 15%||90||510 points||1 hour|
|Level 3 - 20%||120||480 points||Rest of the day|
In this example, the first level Circuit Breaker will be triggered at a 10% decline of 60 points in the FBMKLCI closing index of 600 points. For the second level Circuit Breaker (15%), the decline will be 90 points while for the third level Circuit Breaker (20%) the decline will be 120 points.
Therefore, if the FBMKLCI declines below the previous market day's closing index to or below:
There may be four (4) situations where the Circuit Breaker could be triggered during the day based on the FBMKLCI's previous market day's closing index, i.e. a decline of:
Thus, the situations show that the FBMKLCI could decline in:
In addition to the above, there are two (2) more conditions for the Circuit Breaker framework:
Trading halts for each trigger level will occur only once during the trading day.
For instance, if the previous day's FBMKLCI is at 1000 points and it drops to 855 points (breaching the 10% trigger level), trading will halt for one (1) hour.
Subsequently, if the FBMKLCI goes up again during the day to 1020 points and then drops to 870, the first level trading halt (i.e. at 10%) will not be triggered as it had already been triggered. This condition applies to all the four (4) situations mentioned above.
If FBMKLCI breaches a higher trigger level (e.g. 15%) by bypassing a lower one (e.g. 10%), the lower trigger level (e.g. 10%) will not be triggered during the trading day.
This condition describes the example in (ii) above where the FBMKLCI falls abruptly to 15% bypassing the 10% trigger level. In this event, the trading halt in respect of the 10% level decline will not be triggered at all during the day.
The Circuit Breaker mechanism will only halt trading temporarily when it is triggered. All clearing, settlement and depository operations will function as normal.
For example, if the Circuit Breaker is triggered at 10:00 a.m., all trades matched as at 10:00 a.m. will be cleared and settled as normal according to the T+3 settlement system. All unmatched orders keyed in prior to 10:00 a.m. will continue to be matched upon resumption of the trading.
During a halt in trading, the following are permitted in accordance with the Rules of Bursa Malaysia:
All matched orders will remain valid while unmatched ones entered into the trading system will continue to be in the order queue when the Circuit Breaker is triggered at the 10% and 15% levels.
Unmatched orders will only be removed when the Circuit Breaker is triggered at the 20% level or when trading halts for the rest of the trading session.
New market orders are not allowed during a halt in trading, however, the market orders prior to a halt in trading in a particular trading session shall remain valid for the whole day. New market orders are allowed upon resumption of the trading.
Investors will be informed upon the trigger of the Circuit Breaker through immediate dissemination of public announcements by Bursa Malaysia through various sources - the media, the internet at www.bursamalaysia.com and Participating Organisations.
Upon the trigger of the Circuit Breaker and the commencement of the trading halt, investors will also be informed on the appropriate date and time for the resumption of trading.
When the Circuit Breaker is triggered, investors should continue to keep themselves updated and informed by continuing to access all possible sources of information available.
In this manner, investors will be able to assess and review prevailing conditions based more on information, and less on market trends and speculation, in order to make well-considered investment decisions once trading resumes.