Chronicle Editor
Vuyisile Mlilo, Business Reporter
THE Zimbabwe Stock Exchange (ZSE) has revealed that they have made a number of operational changes aimed at aligning with international best practices and boosting liquidity.
The changes primarily focused on circuit breaker thresholds and price discovery. Responding to questions from Sunday News, ZSE chief executive officer, Mr Justin Bgoni said the importance of circuit breakers was to curb panic selling and ensuring market stability.
“Circuit breakers are a temporary measure used by an exchange to halt trading in a bid to curb panic-selling on stock exchanges. This actually helps investors so that accurate information can flow through the market within that time frame, thereby preventing speculative gains and irrational losses. The absence of circuit breakers can result in sharp price movements that can generate execution uncertainty, create severe order imbalances, or affect the fair and orderly trading and the integrity of our market, hence the need for continuous monitoring of circuit breakers to prevent extreme volatility, ensure price continuity and curb panic selling by investors,” said Mr Bgoni.
On the rationale to adopting the circuit breakers, the ZSE CEO said their use was a common phenomenon in the stock market having been first introduced in the United States at the New York Stock Exchange (NYSE) around 1987, hence they actually align with international best standards for stock exchanges.
The ZSE CEO also revealed that the operational changes implemented include widening the trading range for lower priced stocks. He said this change will provide investors with more opportunities to buy or sell these stocks at prices that accurately reflect their value, thereby benefiting both investors and market participants.
“The application of these operational changes will boost liquidity and ensure price discovery. This is achievable since usually when trading resumes after a cool-off period, circuit breakers curb panic selling and investors are given an opportunity to make better-informed decisions and safeguarded from irrational losses.
“One of the roles of the exchange is to provide a regulated platform for the secondary market buying and selling of securities. In order to ensure the alignment of this role, we have in place the trading procedures which contain guidelines on when and how to apply circuit breakers and which also guide us on any operational changes that we adopt when trading. We are continuously monitoring trading on the exchange, and this allows us to review our practices in line with the market movements so we remain in sync with international best practices, we also got feedback from the market that there was need to review circuit breakers of the smaller and less liquid counters,” added the ZSE CEO.
He further noted that the ZSE was in continuous engagement with market participants on any changes that it makes, and the input of such operational changes are in line with the ZSE trading procedures which is the main guide for trading on the exchange. To ensure that all traders are made aware of the new changes, Mr Bgoni said they communicated through a public notice which was distributed to all market participants as well as uploaded on the ZSE website and all the official ZSE social media platforms.
“One of the roles of the exchange is to provide a regulated platform for the secondary market buying and selling of securities. In order to ensure the alignment of this role, we have in place the trading procedures which contain guidelines on when and how to apply circuit breakers and which also guide us on any operational changes that we adopt when trading. Since we are always seeking ways to improve and enhance our market, the ZSE will continue to review its operations in line with market developments where necessary. The ZSE is always in constant engagement with market participants, and we always value constructive feedback that assists us in enhancing the performance of the exchange. Any changes that we will adopt from the feedback gathered can be incorporated through issuance of practice notes,” said the ZSE CEO.
Online Reporter