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The Nigeria Stock Exchange yesterday introduced a circuit breaker to curtail the price instability for equities. The stock market took an unprecedented slide during the week.
A halt in trading on the Nigerian Stock Exchange was expected for 30 minutes if the All Share Index moves 5 percent from the previous day’s close between 10:15 a.m. and 1:45 p.m., the Lagos-based bourse said in a statement on its website. The market will close for the day if the circuit breaker is triggered for a second time or after 13:45 p.m.
The implementation of the rule, originally approved by Nigerian authorities in May 2014, came as the market experienced its sixth day of losses. The All Share Index fell 3 percent to 23,514.04 on Friday, extending its weekly decline to 13 percent.
“Investors are panicking with oil prices having dropped significantly in the past week,” Seun Olanipekun, an analyst at Investment One, said by phone from Lagos. “It’s the NSE trying to manage the market so that the All Share Index doesn’t significantly decline.”
China scrapped its controversial circuit-breaker this month after finding that rather than save its stocks, it led investors to rush out on days of dwindling declines in stocks.
Head of Corporate Affairs for the NSE, Mr. Joseph Kadiri, could not be reached at the time of filing this report for comments.
The first circuit breakers were introduced after the market crash of October 19, 1987, when the Dow Jones Industrial Average(DJIA) dropped 5 points, or 22.6%, in one day. The crash, which began in Hong Kong, affected markets all over the world, and has come to be known as Black Monday.
A second incident, the flash crash of May 6, 2010, saw the DJIA lose 998.5 points, or over 9%, in just ten minutes. Prices recovered—or very nearly—before market close, but the failure of post-1987 circuit breakers to stop a fat-finger trade and the panic it caused led FINRA, the exchanges and the SEC to develop a new market-soothing regime.
The “fat-finger trade” theory, which posited that an inattentive trader had typed too many zeros and thus placed a gargantuan sell order, later proved false.
London-based trader Navinder Singh Sarao is thought to have caused the crash through the use of spoofing algorithms, but his alleged role was not revealed until his arrest in April 2015, after the current circuit breakers were put in place.
