All of that happened in just 7 minutes of the start of trading. The episode was repeated on Thursday and Friday. The market was rescued from crash by the new circuit breaker regulation made effective from December last year that provides the ‘’trading halt’’ mechanism which is triggered if the market capitalisation based KSE-30 index sinks by 4pc during the session and is unable to wriggle out of it in 5 minutes.
It provides a cooling period of 45 minutes which enables brokers to collect mark-to-market margins from leveraged players to mitigate systemic risk at the market. On all three occasions (Monday, Thursday and Friday) trading was brought to a halt and resumed after 45 minutes.
The massive sell-off at the stock market has ruined investors. The value of shares dipped to Rs6.81tr, signifying a colossal loss of Rs1.04tr in less than two months
As the World Health Organisation described the coronavirus outbreak as a pandemic for the first time last Wednesday, investors are at a high pitch of anxiety which is made worse by reports of the discovery of every new confirmed case of infection in Pakistan.
The massive sell-off at the stock market has ruined investors, many having deprived of all of their life savings. The market capitalisation of the Pakistan Stock Exchange (PSX) stood at Rs7.85 trillion on Dec 20 when the first case of the dreaded virus surfaced in China. By Friday last, the value of shares had dipped Rs6.81tr signifying loss in the colossal sum of Rs1.04tr in less than two months.
The carnage at the PSX was in sync with the meltdown in global markets where equities from Wall Street to the Middle East and Asia are witnessing heavy bleeding on fears of a coronavirus impact of a greater than expected slowdown in world economies. The market halt regulations have been in place in other bourses as well.
On Thursday, such mechanisms also went into effect in the Philippines and Thailand. Some market players disapprove the ‘’market halt’’ arguing that trading disruptions prevent price discovery and increase volatility. Chairman Policy Board of the Securities and Exchange Commission of Pakistan (SECP) Mr Khalid Mirza endorses it as a means of giving an opportunity to the run-away market to regroup and let the investors unwind themselves and start thinking rationally.
“When the rise or fall of the market is due to external factors, it is better to maintain the trading halt mechanism,” he affirmed. Mr Mirza believed that the major reason for the decline of share values at the market was that they were “overbought’’ and a correction was due.
Dawn news
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