The JSE has been prepping for a possible collapse of SA’s electricity grid and says it is ready for any such eventuality.
While the bourse enjoyed 99.9% uptime across all its markets in 2022, moderately above the long-term average of 99.83%, the potential collapse of SA’s struggling power grid could play havoc with trading activity.
The sudden halt in trading that would occur in the event of a grid failure could also spark panic selling once power resumed, with potentially catastrophic consequences for local asset prices.
“We are preparing for any eventuality in a grid lockdown,” JSE CEO Leila Fourie told Business Day on Wednesday shortly after the group announced its results for the year to end-December.
“All of our contingency plans are really designed around ensuring that we’ve got back-up electricity, that we’ve got back-up power in various forms and that all participants are able to connect to the market.”
The Reserve Bank issued a statement on February 21 saying its Financial Sector Contingency Forum, a unit instituted after the 9/11 terror attacks, had been preparing response plans for a national or regional grid failure since at least 2015. As part of its preparations the forum has been in regular contact with Eskom, the petroleum industry and the telecom industry regarding the impact of a possible grid failure.
“To the extent that telcos go down, that would of course affect the ability of traders to access the trading engine. We are pre-empting any complexity in that space,” said Fourie.
“We’re working with market participants and we’re preparing as best we can.
“We are engaging our regulatory counterparts — all of the regulators and policymakers.”
The big consideration for the JSE is ensuring equal access to markets for all participants as well as effective price formation should a grid collapse cause a disruption in trading. The likely impact of such an event would be massive volatility in pricing due to possible trader panic, which would in turn likely force the JSE to institute volatility auctions on affected securities, which would render them unavailable for purchase or sale for a period of time.
This happens when the price of a certain security moves beyond a particular tolerance level, triggering an algorithmic circuit breaker that renders the security unavailable for trade, typically for five minutes at a time. During this time trade matching is temporarily abandoned so that the JSE can publish a match price level at which trading can resume once the volatility auction ends.
“There are a number of structures in our market environment that are designed to deal with business continuity disruptions ... whether it’s electricity or people moving ... to working from home,” said Fourie. “We would put the market into what we call an auction, which really causes traders to stop, take a breath, rethink the pricing and find a new equilibrium. It’s effectively a speed bump.”
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