Government mulls stock market circuit breakers

By Hung Le   June 17, 2020 | 06:30 pm GMT+7
Government mulls stock market circuit breakers
An investor looks at stock prices on the screens at a brokerage in Ho Chi Minh City. Photo by VnExpress/Quynh Tran.

The Finance Ministry is proposing the use of circuit breakers, or temporary trading suspension, on stock exchanges when they get too volatile.

A draft decree released by the ministry Wednesday for public discussion says the circuit breakers will be applied when significant fluctuations take place in total market capitalization, per session liquidity, foreign investor trading volume and other factors threaten the smooth operation and stability of Vietnam’s equity markets.

The decree would also allow the application of circuit breakers in the event large-scale securities firms or organizations dissolve, affecting market safety.

The State Securities Commission (SSC) would be in charge applying these regulatory measures, including requiring Vietnam’s three stock exchanges to change their opening hours, narrow daily price bands, or halt the execution of continuous order-matched transactions. It may also fully or partially suspend trading on each stock exchange, the draft decree says.

In the U.S., circuit breakers are applied if an index moves more than 7 percent.

In March, Asian markets such as India, Japan, South Korea, Indonesia, Thailand and the Philippines have these circuit breakers as coronavirus-triggered sell-offs ravaged their stock markets. Depending on the situation and country, trading suspension can last as little as five minutes, or up to over an hour after losses breach a pre-determined limit.

Vietnam this year experienced a historic losing session on March 9, when the discovery of a new wave of Covid-19 patients shaved 6.28 percent off the benchmark VN-Index, its biggest single-day loss since 2001.

It has also seen three major movements in the past five sessions, with two drops of 3.7 percent and 3.6 percent due to profit-taking pressure from investors, and a recovery of 2.84 percent on Tuesday.

Slight drop in VN-Index

The VN-Index, after Tuesday’s major recovery, edged down 0.2 percent, or 1.69 points, to 854.44 points Wednesday. The Ho Chi Minh Stock Exchange (HoSE), on which the VN-Index is based, saw 220 tickers losing and 147 gaining.

Total trading volume slumped to its lowest level in the past month, to VND4.34 trillion ($186 million), just slightly above daily trading averages between February and April, when the Covid-19 epidemic scared investors off the stock market.

The past few weeks has been some of the most lively sessions this year at the HoSE, with liquidity hovering around VND6-7 trillion ($257-300 million) a session and the VN-Index going a recovery streak from 760 points to as high as 900 last week.

The VN30-Index for the stock market’s 30 largest capped stocks this session shed 0.3 percent Wednesday, with 19 tickers losing and 10 gaining. Private banks were some of the biggest losers this session.

Leading losses was STB of private Sacombank, down 2.5 percent, followed by BVH of insurance giant Bao Viet Group, down 2.4 percent.

The next three included HDB of private HDBank, and TCB of private Techcombank, down 1.6 percent and 1.5 percent respectively, while VIC of private conglomerate Vingroup, the VN30’s largest cap, shed 1.6 percent.

Of Vietnam’s three biggest state-owned banks by assets, CTG of Vietinbank dropped 1.1 percent, BID of BIDV fell 1 percent, while VCB of Vietcombank rose 0.6 percent.

In the opposite direction, PLX of petroleum distributor Petrolimex topped gains with 3.3 percent, followed by VRE of mall operator Vincom Retail, up 2.8 percent, and VJC of budget carrier Vietjet Air, with 1.9 percent.

Other major gainers included ROS of FLC Faros and VHM of Vinhomes, both real estate developers, adding 1.6 percent and 1.5 percent respectively.

Meanwhile, the HNX-Index for stocks on the Hanoi Stock Exchange, home to mid and small caps, fell 1.92 percent, and the UPCoM-Index for stocks on the Unlisted Public Companies Market shed 0.36 percent.

Foreign investors continued to be net buyers to the tune of VND100 billion ($4.29 million) on all three bourses, with buying pressure mostly on PLX of Petrolimex and VHM of Vinhomes.

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