30 July 2019
On 15 July 2019, Singapore Exchange (“SGX”) issued a consultation paper seeking comments on possible enhancements to the auction routines that take place at the end of the opening routine, mid-day break and closing routine (as defined in Regulatory Notice 8.2.1 of the Singapore Exchange Securities Trading Limited Rules. The consultation is open until 15 August 2019.
The proposed enhancements are aimed at preventing extreme price dislocations while enabling price discovery. This would strengthen the robustness of, and investor confidence in, auction routines. They will complement existing exchange- and member-level safeguards against such price dislocations.
Key proposals are highlighted below.
Implementation of price collars
Price collars prevent matching of orders beyond a certain range. Orders which could match at prices beyond the price collar do not participate in the relevant auction routine. It is contemplated that a price collar of ±30% will apply for the opening auction while a ±10% price collar will apply for the mid-day and closing auction routines. The reference prices for the collars will generally be the last traded price, i.e. the previous day’s closing price for the opening auction, or the last traded price before the mid-day break and closing auction respectively. The price collars will act as hard price limits on the matched auction price.
Extension of auction routine
An alternative being considered is for an extension of the auction routine by a fixed period should the indicative opening price move beyond a certain threshold. The contemplated thresholds are ±30% from the previous day’s closing price of a counter for the opening routine, and ±10% from the last traded price for the mid-day and closing routines. SGX proposes an extension time of five minutes to allow market participants to analyse market conditions and review their orders. During the extended time, participants can enter, modify or withdraw orders; however, no order-matching occurs until at the end of the time extension. While more time will be given to market participants to manage their orders, there will be no hard price limits on the matched auction price.
SGX is also considering a hybrid model, where time extensions will apply for the opening and mid-day routines while a price collar will be applied on the closing routine. Both mechanisms will operate in a manner similar to the above two proposals. The hybrid model is intended to promote market-led price discovery in an orderly manner during the opening and mid-day auctions, while ensuring greater price stability and a fixed end time in the closing auction.
The following materials are available on the SGX website www.sgx.com:
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