During periods of high volatility, a share may not be available to buy or sell for a period of time as the share has gone into a volatility auction. Take a read below for some details on the different terms and why these volatility auctions take place.
Volatility is defined as the rate at which the price of an equity increases or decreased over a given period. Volatility measures how risky an equity is, so if an equity's price fluctuates rapidly over a short period, then it is a high volatility stock. If the price of an equity varies slowly over a long-time span, then it is deemed to be a low volatility stock.
What is a Circuit Breaker?
Circuit breakers trigger temporary halts in trading of an equity on the JSE during market volatility and are imposed by regulators across the globe. This brief pause in trading is to assist investors to understand market conditions better and to try and curb the panic-selling of an equity.
Circuit breakers are triggered automatically on an instrument level if the circuit breaker tolerance is breached, which will enforce a trading halt for periods of 5 minutes at a time.
Circuit Breaker Tolerance
The Circuit Breaker Tolerance is the maximum allowed percentage change an equity’s next price can move from the Static or Dynamic Reference Price. If this percentage change is equal to or greater than the permitted session’s Circuit Breaker Tolerance, then the equity will be automatically moved into a Volatility Auction Call session.
What are Volatility Auction Sessions?
The Volatility Auction Call Session is the session where an equity is automatically moved after a Circuit Breaker has been triggered and may last for periods of 5 minutes at a time. During a volatility auction, no trades are matched, but orders to buy or sell can be entered or deleted from the market.
The JSE will publish a live match price during the auction, which will be the equity's price at which it will start trading once the volatility auction comes to an end.