SGX issues consultation paper on revised price limits for Nikkei Futures and Nifty Futures contracts

14 May 2009

Singapore Exchange Limited (SGX) is inviting public comments on the proposed revised price limits for the following futures contracts listed and traded on SGX Derivatives Trading Limited (SGX-DT):

The SGX Nikkei-related suite of futures contracts – namely, the Nikkei Stock Average Futures (SGX NK), the SGX Mini Nikkei Stock Average Futures (SGX NS) and the US dollar-denominated Nikkei Stock Average Futures contracts (SGX NU). These three contracts are collectively referred to as the SGX Nikkei Futures; and

The SGX CNX Nifty Futures contract (SGX Nifty Futures).

Price limits are put in place as checks, in situations where prices of futures contracts move sharply compared to the settlement prices of the previous trading day. When price limits are reached, cooling off periods are triggered to give market participants the opportunity and time to assess the situation before reacting, as well as verify any information which may have resulted in such sharp market movements. These mechanisms serve to maintain orderliness in the market, particularly when trading conditions are volatile.

In light of extreme market volatility in October 2008, SGX determined that it was necessary to expand the price limits for the SGX Nikkei Futures and the SGX Nifty Futures as part of maintaining a fair and orderly market on SGX-DT. Following these interim measures, SGX is conducting a holistic review of the appropriateness of its price limit models for the SGX Nikkei Futures and the SGX Nifty Futures contracts.

In revising its price limit framework, SGX’s objectives are to provide more seamless trading, greater convenience and accessibility for investors and to grow liquidity on the SGX-DT platform. The proposed revised framework minimises situations where local participants are exposed to substantial and increasing risk.

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