Singapore Exchange (SGX) is considering modifications to its error trade policy in a bid to reduce cancellations and foster greater certainty around trades.
The exchange is proposing to introduce a non-cancellation range of 20 minimum bid sizes or 5% from a reference price – whichever is higher – on selected instruments trading on its securities market.
Under the proposed changes, SGX would not consider requests to review error trades if the disputed error trade fell at or within the new non-cancellation range, which ordinarily would be based on the price of the previous trade.
The exchange contends introducing a non-cancellation range would increase trade certainty in trades which would otherwise have been disputed and referred to SGX.
Reviewing its own data, SGX found more than 95% of price movements were within 20 minimum bid sizes or 5% from the previous trade in the period 2006 to mid-2011. The exchange also found that approximately 30% of disputed error trades referred to SGX were within the proposed no-cancellation range and the exchange did not cancel the trades.
Current rules require trading members to seek agreement from the counterparty to cancel an error trade. The error trade must be reported to SGX within 30 minutes.
If parties cannot agree to cancel the error trade, SGX can intervene upon request and terminate the trade if it considers annulment appropriate.
The introduction of a price adjustment is also being considered by SGX as an additional error trade dispute resolution method.
The current rules do not distinguish between different securities instruments, except for an additional no-cancellation range for structured warrants.
Included in the range of securities to come under the new rules are exchange-traded funds, exchange traded notes and all other securities excluding bonds, debentures and structured warrants.
The consultation paper is available on SGX's website and submissions from interested parties are open until 27 September 2011.