PSX to implement Equity Index Circuit Breaker to avoid panic selling

LAHORE: Pakistan Stock Exchange (PSX) has announced plans to implement a circuit breaker from the start of next year to help avoid panic selling and volatility in the market after the index swung to a two-year high in September, Bloomberg has reported.

According to the report, Securities Exchange and Commission of Pakistan Spokesperson Musarat Jabeen told Bloomberg that “A move of 4 per cent in the KSE-30 Index will trigger a trading halt”, adding, “the limits will be raised gradually to 5 per cent, she said. Caps on individual stocks will be widened to 7.5 per cent in increments of 0.5 per cent, from 5 per cent at present.”

In another statement, PSX Chairman Sulaiman Mehdi said, “The strategy is a gradual approach — baby steps to help digest the entire process.”

While talking to Profit, Pakistan Kuwait Investment Company Assistant Vice President Adnan Sheikh explained, “This is a good move by the PSX to increase liquidity in the market and signals that the market is preparing for the exchange-traded fund (ETF) and other options.”

He further added, “I am glad that it is in a phased manner increasing in steps of 0.5 per cent, rather than a full jump.”

For the layman, circuit breakers are measures approved by the Securities and Exchange Commissions around the world to curb panic-selling within the stock exchanges. Circuit breakers help by temporarily halting trading when prices hit predefined levels, in Pakistan’s case 4 per cent from the start of next year.

PSX has generally had a tough year as the indices have swung violently, with KSE-100 index hitting a near a five-year low of 28,670.98 points in August before rebounding to 41,766.93 points on the back of improved economic prospects. Moreover, Pakistan has not been spared from the volatility hounding emerging markets this year. Moreover, according to Bloomberg data, a gauge of 30-day historical volatility tied to the KSE-30 Index in September jumped to the highest since 2017.

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