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NSE releases guideline on the circuit breakers’ rule

By Helen Oji
08 February 2016   |   1:14 am
The Nigerian Stock Exchange (NSE) announced that it has released its Interpretative Guidance on the Circuit Breakers’ Rule. Rule 15.46 of the Rulebook of The Exchange, 2015 Circuit breakers are trading halts used by Exchanges to guard against sharp fluctuations on the market. They are designed to give the market an opportunity to take a break and…

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The Nigerian Stock Exchange (NSE) announced that it has released its Interpretative Guidance on the Circuit Breakers’ Rule. Rule 15.46 of the Rulebook of The Exchange, 2015 Circuit breakers are trading halts used by Exchanges to guard against sharp fluctuations on the market.

They are designed to give the market an opportunity to take a break and adjust to all available information before re-opening the market. They provide protection against excessive volatility during continuous trading sessions of the market.

Circuit breakers also provide the opportunity for greater information dissemination and assimilation to all market participants, including investors to facilitate better informed investment decision making during periods of high market volatility.

The Rule became effective on January 15, 2016. The Exchange also notified the market of the Securities and Exchange Commission (SEC)’s January 19, 2016 approval of amendments to the Rule.

According to the Exchange, the implementation of the circuit breaker system is consistent with the procedures prescribed by the World Federation of Exchanges in its 2008 Report on circuit breakers, as well as the International Organization of Securities Commissions in its 2002 report on trading halts and market closures.

The NSE explained that the circuit breakers would be triggered during periods of extraordinary volatility in the equities market in order to maintain an orderly market, and to allow liquidity to re-aggregate.

The purpose, according to them was to dampen extraordinary volatility swings on market prices by providing time to restore equilibrium between buyers and sellers.

It also has the objective of dampening both market upswings and market downswings, and will complement the price limits on individual stocks already in place.

The Exchange, through the Index Circuit Breaker Rule, seeks to promote just and equitable principles of trade, remove impediments to and improve the mechanism of a free and open market; and protect investors and the public interest.

The circuit breaker threshold will be set by the Exchange from time to time. The Exchange has determined to set the threshold at 5 per cent for the first trigger and a further 5 per cent for the second trigger in the same direction.

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