The Board of the International Organization of Securities Commissions published eight recommendations to assist trading venues and regulatory authorities in the implementation of mechanisms to manage extreme volatility and preserve orderly trading.
The report, Mechanisms Used by Trading Venues to Manage Extreme Volatility and Preserve Orderly Trading, recommends that trading venues should have volatility control mechanisms to manage extreme volatility and these mechanisms should be appropriately calibrated and monitored.
The report assists trading venues and regulatory authorities in implementing, operating and monitoring volatility control mechanisms by making recommendations that trading venues should, among other things, regularly monitor volatility control mechanisms to ensure they are working as designed and identify circumstances that would require the mechanisms to be re-calibrated. Trading venues also should make information available about volatility control mechanisms and when they are triggered to regulatory authorities, market participants and, if appropriate, the public.
Because of the importance of information sharing and communication among trading venues, the report recommends that where the same or related instruments are traded on multiple trading venues in the same jurisdiction, trading venues should communicate with one another when volatility mechanisms are triggered, as appropriate. Communication among trading venues may also be appropriate where the same or related instruments are traded in different jurisdictions and a volatility control mechanism is triggered.
The report also identifies the more recent development and use of price constraint mechanisms that, rather than simply halting trading, reject or constrain certain orders to allow trading and price formation to continue.
Full report
© IOSCO
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