The NZX 'circuit breakers' to keep stock market orderly

Markets around the world have been jittery in the face of the spread of coronavirus. Photo / File

NZX Regulation has reminded listed companies that it has circuit-breakers at its disposal to manage market volatility and can halt trading to calm disorderly trading.

The stock market operator's regulation arm said its circuit-breakers apply at a financial product level rather than at a market level, with tiered trigger points depending on the prevailing price of a security.

"At this time, NZX has advised that it does not foresee any impact on infrastructure or workforce capacity that would disrupt full normal operations of New Zealand markets and there is no current proposal to amend any scheduled trading sessions or undertake any other extraordinary measures such closing our markets," it said yesterday.

The stock market operator's reminder came as the Australian Securities and Investment Commission directed a number of large ASX market participants to limit the number of trades they make daily until further notice.

Australia's market regulator became concerned when trading volumes shot up on Friday – a day when the S&P/ASX Index fell as much as 8 per cent during the day, only to end the session up 4.3 per cent.

ASIC told affected market participants to cut the volume of trades by up to 25 per cent of what was traded on Friday, when volumes grew exponentially. That will force high-volume traders to actively manage their volumes, but isn't expected to limit retail investor trading.

"While there was no disruption to market operations on Friday, there was a significant backlog of work required to be undertaken over the weekend by the exchanges and trading participants. If the number of trades executed continues to increase, it will put strain on the processing and risk management capabilities of market infrastructure and market participants."

New Zealand's Financial Markets Authority doesn't have as far-ranging responsibilities as ASIC, in that NZX's regulation division is the frontline supervisor.

"The FMA understands that NZX is not proposing to introduce limitations of the nature imposed by ASIC," an FMA spokesman said.

"The FMA and NZX acknowledge the significant challenges for issuers at this time and remain in regular contact about the impact of covid-19 on NZX-regulated issuers."

Both the S&P/NZX 50 and S&P/ASX 200 indices entered bull market territory in recent days as they slumped more than 20 per cent from their peaks in late February.

The declines were unexpectedly fast as investors were roundly disappointed by the slow policy response from the US to the covid-19 outbreak, while at the same time Russia and Saudi Arabia found themselves at odds over oil production.

Trading activity on the NZX has been elevated since the outbreak emerged. NZX share market metrics show the daily number of trades on the cash market more than doubled to 30,043 in February, from a year earlier. The average daily value rose to $190 million, up almost 20 per cent.

That was up from 23,652 daily trades in January, for an average value of $157 million, and 23,132 trades in December worth $138 million.

- BusinessDesk