Aug 2008 Financial News

NEW BSE INITIATIVE

Aug 21, 2008

IN just a matter of months, traders on the Barbados Stock Exchange (BSE) will have a new rule by which they can operate the Price Stabilisation Rule.

This comes from Ezra Marshall, Deputy Manager of the BSE, during a recent presentation at the Grand Salle of the Central Bank of Barbados.

Under the new rule, the General Manager or, in his absence, the Operations Manager of the Exchange, may halt trading in a security for a period of not more than two hours if the offer price or bid price rises or falls more than ten per cent above or below the closing price of the previous day's trading without apparent reason.

The BSE monitors the market for activity which invokes the use of this rule. According to Marshall, a halt to trading will only occur once in a trading session for any one security.

The BSE deputy manager recalled that prior to the new rule, there was a market practice where the ten per cent threshold could not be breached, so an order could not go in outside of this ten per cent threshold except on the condition that for six trading sessions that nobody had any activity after it reached the top or the bottom of the market.

He explained what that really meant was that if you had security and you realised that the value of this security was more than or less than ten per cent of the actual last close price, you could not put an order on the BSE board that would allow you to realise the value that you saw in the security.

The previous rule stated that in order to stabilise the market, the Board of the Exchange had to resolve that the bid and offer price of a traded security shall not rise or fall by more than ten per cent above or below, respectively, the closing price of the previous trading day.

Marshall noted that there was at least a three-week wait, sometimes four, in order to meet the criteria of this particular rule. He said, Now over the years we have had several instances where this rule has been the subject to recent controversy, but the interpretation has been different in many instances. We realise the need to address the inconsistencies of this rule and we wanted to bring ourselves in line with international best practices. That in mind, we do not do anything lightly at the Stock Exchange, have been doing our market research, we have identified the reasons why we needed to address this weakness in our market.

We have better price discovery in the market when this ten per cent restriction is removed. There is absolutely nothing in the current rule to put an order in the market that would allow you to realise the true value of any security and that is what we are seeking to do. In that way we hope to promote some liquidity, have better pricing mechanism and it will promote continuity as well, because you do not have to wait six weeks to move the share price, which could be moving up for your advantage or down for your disadvantage.

Another reason for the change is that you would have heard that we are in a project with Jamaica Stock Exchange (JSE) and Trinidad and Tobago Stock Exchange (TTSE), a Caribbean Exchange project. It makes us competitive in regional markets.

Marshall explained that the ten per cent threshold still exists but is no longer a ceiling floor. Orders outside ten per cent band are evaluated using: Green - Trading Continues Unaffected, Amber - Trading May/May Not Be Halted and Red - Trade Halt.

Furthermore, he noted that those alerts are system initiated and are broadcast to all users of the trading system. Additionally, trading halts are initiated by the system without manual intervention and will occur for the particular symbol only. Manual intervention is required to resume when a halt occurs.

As explained by the BSE deputy manager, the length of suspension will vary depending on circumstances such as market trend, magnitude of price change and prevailing market.


Source:
Stacia Browne
Barbados Advocate
Wednesday August 20, 2008

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