Share prices rose to new highs in mid-day trading at the NSE, setting off the automatic alarm that modulates the market in the event of extreme general decline or increase in share prices. The market thereafter resumed cautiously in auction mode and gradually eased into continuous trading session until the formal closing time of 2.30pm.
The NSE noted that the market-wide circuit breaker kicked in at 12:55 pm when the benchmark All Share Index (ASI) rose beyond the set threshold of 5.0 per cent, triggering a 30-minute trading halt of all stocks. ASI is a value-based common index that tracks share prices of all stocks quoted on the NSE.
According to the Exchange, the circuit breaker protocol was triggered by the increase of the ASI from 33,268.36 to 34,959.39. The market reopened at exactly 1:25 pm with a 10-minute intraday auction session, before resuming continuous trading till the close of the day at 2:30 pm.
At the end of the trading session, aggregate market value of all quoted equities at the NSE rose from its opening value of N17.384 trillion to close at N18.468 trillion, representing an increase of N1.08 trillion. The ASI leapt from its opening index of 33,268.36 points to close at 35,342.46 points.
During the halt of trading, no order could be placed until trading resumed. However, existing orders could be withdrawn or cancelled but could not be modified. Trading halts did not affect the clearing, settlement, and depository operations for matched trades, as these functioned as normal. Furthermore, all existing orders keyed in prior to the trading halt were re-activated and were matched upon resumption of trading.
“This was the first time that the circuit breaker had kicked in since its introduction in 2016,” NSE stated. The circuit breaker trigger was on standby in March 2020 when the combined effect of COVID-19 pandemic and crude oil price crash drove the market to a decline of 4.9 per cent in a trading session and a loss of N1.85 trillion in a week.
Prior to the institution of the 5.0 index circuit breaker, the Nigerian market had declined by more than nine per cent in a day in the heady days of the market recession in 2008.
The automated trading-halt system, known as index circuit breaker, is automatically coupled with the NSE’s benchmark index, the ASI. It triggers automatic shutdown of the market in the event of extremely volatile trading. The first trigger is indexed at 5.0 per cent. The index circuit breaker meanwhile deals with both extremely volatile upward and downward movement of share prices.
A circuit breaker is a trading halt used by an exchange to guard against sharp fluctuations in the market. It is designed to give the market an opportunity to take a break and adjust to all available information before re-opening. It provides protection against excessive volatility during continuous trading sessions of the market.
The automated index circuit breaker at the NSE allows the trading engine to automatically halt trading in the first instance of extraordinary market volatility and shut down the market where such volatility continues after the initial pause.
The index circuit breaker relies on Rule 15.46 of the NSE’s Rulebook, 2015 as well as Section 14.2 of the NSE Market Model and Trading Manual. The rules empower NSE to halt trading in all securities for 30 minutes in the event of five per cent rise or decline in ASI.
According to the rule, the market will be closed for the day if at the resumption of the 30-minute break, the ASI witnesses further decline or rise of five per cent.
The NSE also currently has a 10 per cent single-stock circuit breaker, which limits the daily allowable change in the price of any equity to 10 per cent. The ASI-based market-wide circuit breaker will operate in addition to the single stock limit.
“If a market move occurs after 10.15 am and any time up to and including 13.45 pm, the Exchange shall halt trading in all stocks for 30 minutes. The Exchange shall not halt trading if a significant market move occurs after 13.45 pm. The Exchange shall halt and reopen trading based on a significant market move only once per trading day,” the rule stated.
According to the rule, if following the reopening of trading after a significant market move halt, the ASI moves further by a minimum of five per cent below or above its closing value on the immediately preceding trading day, during any trading day the Exchange will halt all trading for the remainder of the day. The last traded price in any security prior to the closing of the market shall be deemed the closing
“Trading halts will only occur in the event that the ASI breaches the 5.0 per cent movement threshold in either direction between 10:15 am and 13:45 pm during a trading day. Trading will not be halted if an Extraordinary Market move occurs after 13:45 pm. In addition, The Exchange will halt and reopen trading based on an Extraordinary Market move only once per trading day,” NSE explained in the interpretative guidance.
Trading halts will however not affect the clearing, settlement and depository operations for matched trades, which will function as normal.
NSE’s circuit breaker is consistent with procedures prescribed by the World Federation of Exchanges (WFE) in its 2008 Report on Circuit Breakers, as well as the International Organization of Securities Commissions (IOSCO) in its 2002 Report on Trading Halts and Market Closures.
Circuit breaker provides 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.
According to the NSE, the circuit breakers will 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 is to dampen extraordinary volatility swings on market prices by providing time to restore equilibrium between buyers and sellers,” NSE stated.
The NSE noted that circuit breakers have the objective of dampening both market upswings and market downswings, and will complement the price limits on individual stocks already in place.
The Exchange added that the 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.
