On 12 October 2023, the European Securities and Markets Authority (ESMA) published a supervisory briefing on the calibration of circuit breakers.

Circuit breakers are used by trading venues to protect markets against episodes of volatility affecting instruments or the whole market. They have played an important role in a variety of circumstances where volatility materialised, such as during the beginning of the COVID-19 pandemic in 2020. However, market developments in both commodity derivative markets and equity markets last year have shown that trading venues employ different types of mechanisms where calibrations differ significantly, even when offering the same instruments for trading and using similar trading protocols.

The relevant regulatory provisions include:

  • Article 48(5) MiFID II.
  • Article 19 of Commission Delegated Regulation 2017/584 (RTS 7).
  • ESMA guidelines on the calibration of circuit breakers and publication of trading halts.

This supervisory briefing seeks to strengthen convergence on circuit breaker calibration methodology, promoting compliance, common understanding and enforcement practices among Member State national competent authorities (NCAs).  

It does so by providing a comprehensive overview of supervisory expectations regarding the calibration of circuit breakers in the context of MiFID II’s regulations and ESMA’s guidelines. Furthermore, it outlines several principles that NCAs should enforce to ensure effective circuit breaker implementation.

NCAs will inform the trading venues in their jurisdiction and will follow up on the compliance of trading venues with the expectations set out in the briefing.

It is expected that the calibration of circuit breakers throughout the EU will improve and therefore volatility will be better managed.