The Nigerian Stock Exchange (NSE) market-wide circuit breaker kicked on Thursday, November 12, 2020, at 12: 55p.m, its first time in four years.
The circuit breaker kicked when the NSE All-Share Index (NSE ASI) rose beyond the set threshold of 5 percent, triggering a 30-minute trading halt of all stocks.
Nigeria’s listed stocks have become the new “gold” in town attracting local investors and retail clients – some speculative and others just seeking yields better than the almost zero returns in the Money Markets.
Also, the absence of big international sellers contributed to this strong move on the Bourse – the first in many years.
The Nigerian Stock Exchange circuit breakers are triggered during periods of extraordinary volatility in the equities market in order to maintain an orderly market and to allow liquidity to re-aggregate.
In just one trading day, the stock market of Africa’s largest economy rallied by N1.084 trillion to N18.467 trillion from the preceding day low of N17.383trillion.
READ ALSO: Nigerian stocks post biggest daily gain since April 2015
Also, the NSE All-Share Index (ASI) increased by 6.23 percent from day open low of 33,268.36 points to 35,342.46 points.
Thursday’s record became the first time that the circuit breaker had kicked in since its introduction in 2016. The market’s positive return year-to-date (YTD) has hit a new high of +31.67 percent.
The Circuit Breaker protocol was triggered by the increase of the NSE ASI from 33,268.36 to 34,959.39. The market reopened at exactly 1:25 p.m. with a 10-minute intraday auction session, before resuming continuous trading till the close of the day at 2:30 p.m.
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 However, existing orders could be withdrawn or cancelled but could not be modified.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.
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 purpose is to dampen extraordinary volatility swings on market prices by providing time to restore equilibrium between buyers and sellers.
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.
What the rules on circuit breakers say:
Rule 15.46: Trading Halts Due to Extraordinary Market Volatility (Index Circuit Breakers) says that: The Exchange shall halt trading in all stocks and shall not reopen for the time period specified in this Rule if there is a Significant Market move in either direction.
For purposes of this Rule, a Significant Market move means a five-per-cent (5%) move in the price of the All Share Index between 10:15 am and 13:45 pm on a trading day as compared to the closing price of the All Share Index for the immediately preceding trading day.
Halts in Trading: if a Significant 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 thirty (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; If, following the reopening of trading after a Significant Market move halt, the All-Share Index moves further by a minimum of five-per-cent (5%) below 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 rules also state that the last traded price in any security prior to the closing of the market shall be deemed the closing price in such security for the day.
