Circuit breakers cannot replace stringent policing
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THE rise and fall of Blumont Group, Asiasons Capital and other penny stocks have dominated the Singapore stock market, culminating in the Singapore Exchange (SGX) imposing restrictions on the trading of some of the stocks.
The ensuing mayhem has even prompted investor lobbyist, the Securities Investors Association (Singapore) or SIAS, to urge the authorities to "immediately" implement circuit breakers, rather than wait till year end.
The merits (and demerits) of circuit breakers have long been debated: Trading halts and price limits can stop market panic and give traders time to obtain and analyse information. Price limits can protect the clearing system by increasing the margin payments that bankrupt traders pay before they default. They also increase volatility if traders fear they will not be able to complete their trades before trading stops.
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