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Circuit Breaker and Sarao

DO YOU KNOW THIS GUY?

Navinder Singh Sarao
Navinder Singh Sarao

If you know him then malamang medyu matagal ka na sa stock market pero kung di mo siya kilala don’t worry we will get back to him later.

Marami nagtatanong sa akin s TL Family ko about sa bagong tatlong levels ng circuit breaker. Hindi una ako sumagot kasi gusto ko yung tipong iniisa isa yung pagkatapos ko magpaliwanag ay sure ako naiintindihan ako ng kausap ko kaya tara subukan natin intindihin ang tatlong level ng circuit breaker.

PSE ADOPTS 3-TIER CIRCUIT-BREAKER SYSTEM

The Philippine Stock Exchange has tweaked its market-wide circuit breaker to install a three-tier system that automatically halts intra-day trading at varying duration once certain thresholds are breached.

PSE Circuit Breaker Updated as of April 2020

WHAT DOES IT MEAN SA TAGALOG?

Kapag bumagsak ang Psei ng 10% mula sa closing price/points nito kahapon, magkakaroon ng isang halt na maglalast 15 minutes. Maaactivate ang level 1 circuit breaker. Take note sinabe ko “isang halt” kasi after ng isang halt kahit pa umakyat sa 8% ang Psei at bumalik ulit sa 10% ay hindi na matitrigger ang circuit breaker unless bumagsak ito sa 15%.

Sa 15% naman level 2 ang matitrigger meaning magkakaroon ng 30 minutes trading halt ang market. Isang trading halt lang din ito. Kapag naghalt na for 30 minutes kahit umangat ang Psei sa 14%% at bumalik sa 15% ay hindi na matitrigger ang level 2 unless umabot ang bagsak sa 20% kung saan level 3 naman ang matitrigger. one hour trading halt naman ito.

ANO PO EFFECT NITO MAAM?

Bago ko sagutin yan let me take you back to 2010. On  May 6, 2010 a Flash Crash happened between 2:32 EST to 2:45 EST. The stock market plummeted for 36 minutes and caused trillions of dollars of losses. On that day, The DJIA plunged 998.5 points (about 9%), most within minutes, only to recover a large part of the loss. 

Within minutes lang nagkaroon ng crash meaning bumagsak ng sobra ang DJIA na mahahalintulad mo sa Psei sa Pinas. After a few minutes ay nakarecover din ito. Hindi nila alam at hindi maipaliwanag ang nangyare.

Nagkaroon ng investigation at napag alaman na isang tao ang may pakana ng flash crash at ito ay walang iba kundi si Navinder Singh Sarao. Yung nasa picture sa taas.

 

 

Origin of Circuit Breakers

Looking back, market circuit breakers trace their origins to the 1987 Black Friday market crash but napakita ang importance nito noong mangyare ang flash crash.

Sa atin sa PSE kung may isang brokerage firm ang nasiraan ng bait at nagdecide e benta lahat ng hawak nila na stock para e crash ang market ay hindi niya madaling magawa iyon kasi may circuit breakers tayo na kapag natrigger ay magkakaroon ng trading halts.

Former U.S. Treasury Secretary Nicholas Brady is credited with bringing circuit breakers to stock markets, part of his committee’s recommendations to President Ronald Reagan following the 1987 crash.

Those rules shut the U.S. market early for the only time on Oct. 27, 1997, following a 7.2 percent plunge in the Dow.

The benchmark for circuit breakers was later switched to the larger S&P 500, and the boundary limits have changed to percentage moves from points.

China adopted circuit breakers after a $5 trillion stock rout in mid-2015 left policy makers struggling for measures to contain the turmoil. Chinese Premier Li Keqiang later criticized the nation’s financial regulator and replaced its top official. The new chief said China wouldn’t be ready to reintroduce circuit breakers “for years.” C

ountries that have employed circuit breakers for the overall market include Japan, Brazil and South Korea. Single-security limits have been widely used from the U.K. and Spain to Singapore and India. 

ARE CIRCUIT BREAKERS GOOD OR BAD?

Both. Good kasi napeprevent nito ang flash crash at nakakapag isip ang traders while nasa trading halt. Bad dahil sa magnet effect.

ANO ANG MAGNET EFFECT?

Imagine that you’re a trader at ang Psei ay nasa 8%. Ano ang gagawin mo knowing na pagdating ng 10% ay matitrigger ang circuit breaker? Syempre uunahan mo na at aalis ka na or magbebenta ka na.

In effect, you help cause what you are trying to avoid. A trading halt by triggering circuit breaker. Then, when the exchanges open again, what’s your single biggest fear? That the market will decline to 15%. So what do you do now? As soon as the market reopens, you sell frantically, as do your peers, causing the 15% circuit breaker to be tripped even faster.

Once it happened, it’s likely to happen again. Investors will remember previous shutdowns, so if they’re leaning toward selling on a given day they’ll try to do so even faster this time, to avoid being caught out.

Parang minamagnet ng circuit breaker level ang selling or decision to sell ng traders.

That’s what happened in China a few years ago. You can search it sa internet.

Academic studies generally agree that circuit breakers are prudent but offer little evidence that they reduce volatility after trading resumes or that they cut panic-driven selling.

WHY DID PSE MAKE THIS DECISION?

This is actually to protect local traders. I could have said traders but nilagyan ko “locals” at ipapaliwanag ko yun mamaya kung bakit.

Dahil sa nangyare na crash due to Pandemic maraming binago ang PSE.

Una umiksi trading hours.

Pangalawa hindi na pwede bumagsak lower than 30% ang isang stock sa isang araw.

Pangatlo, yung tatlong levels ng circuit breakers. These were all good if and only if dominated ang market natin by locals.

PAANO NAMAN KAMI? SABI NG MGA POREN.

Lahat ng changes hindi beneficial if foreign ka na nasa Pilipinas ang investment mo at may dumating na Trahedya, Sakuna, War or Pandemic. Hindi mo maliliquidate ang invetment mo. Una 30% lang bagsak ng isang stock.

Kung may Billions of pesos ka na investment hindi mo mailalabas yun. May tatlong circuit breakers ka pa na dadaanan.

You don’t believe me?Check ninyo ang Market reports kung tumigil ba kabebenta ang Foreign. As a matter of fact heto ang ginawa namin sa TL na graph.

PSE Ne Foreign Buying and Selling YTD 2020

SO BAD ANG CIRCUIT BREAKERS NA TATLO ANG LEVEL?

Not really. Matagal na yan sa ibang markets na tatlo ang level n circuit breakers nila. Huli na nga lang tayo nag implement.

Yung shorting sana yun ang mas ayusin nila na maging available sa lahat at magkaroon ng iba’t ibang order types gaya ng stop loss or auto cutloss level ang lahat.

MAHIKA

Gusto ninyo ulit ng magic?

magic

Sa kaliwang kamay ng PSE may mga pagbabago to help locals. Sa kanan naman…

PSE Fees compared to other markets

HUH?

Ok, look closer….

PSE Fees compared to other markets

Yes. More than wice ang binabayaran mo kapag sa PSE ka nagtitrade compared saibang bansa.

Walang limit order, walang stop or stoploss order at hindi available sa lahat ang shorting di gaya sa mga ibang markets na nasa taas na mas mababa ang singil.

What GIF

Wala pang nakukulong sa insider trading simula’t sapul.

Pwede madelist ang isang kumpanya na walang tender offer.

Again tingnan ninyo ang fees. Sa isang milyon mo 11,000 plus agad singil sayo ke talo o panalo. Sa 1 M pesos mo sa ibang bansa ang liit lang ng fees.

PSE Fees compared to other markets

IMPROVEMENT

May room for improvement naman ang PSE. Yung three levels ng circuit breaker ay isang patunay na they are thinking at planning din para sa future. Sana man lang mas bigyan nila pansin ang statistics at research sa pagcocompare sa ibang markets para naman gumanda ang kalagayan ng trading sa atin.

If you want to learn more about stock trading join our Facebook Group called Trader’s Lounge

Our advocacy is sharing ideas, experiences and, knowledge to traders for FREE. We offer free Technical/Fundamental Analysis and Market Psychology learning materials. 

There are available weekly lessons inside. We created different trading strategies like MAMA which made a lot of traders profitable. Other trading strategies include FISHBALL, PAPA, CALMA and more. We want to offer OFW’s, Employees and all Filipino people a chance to learn without paying a cent. 

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Come join us. Let us push free learning. 

13 Comments

  • Rogieto Hinojales

    Napansin ko din yan during gumawa ako nang journal evry end of month at patapos na din ung month of april, at ngayung taon lng ako pumasok sa trading peru matagal na ako nag aaral nito,,,,,, at ngayun ko lng din nalaman masyado nang malaki ung mga fees compare sa ibang bansa. Akala ko first considerable lng at okay lg kasi alam mona sa pilipinas di gaano ka big deal ang trading, stockmarket and etc. Kunti lng din ang may mga alam at maliit lng traders sa pinas. At wla masyadong umaangal kaya di na papansin ng mga authorities at hindi na gagawan ng mga sort of legalities para maging fair o di kaya namn hinahayaan nalng kasi nga wla namng umaangal… Isang source din ito for corruption sa akin lng hah…hehehe

    Salamat dito miss GK

  • kd26

    Very enlightening! Thanks for this, Gandakoh. Is it possible to bring this up to PSE Chair Monzon and see how he will address the high commission/tax percentage and other issues you mentioned, e.g., delisting without tender offer, soft take on inside trading, no shorting, etc? These are very concerning for us and makes PSE less competitive to other markets.

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