The International Organization of Securities Commissions (IOSCO) has published a consultation report on mechanisms used by trading venues to manage extreme volatility and preserve orderly trading.
The consultation report explores the measures currently being used by trading venues in IOSCO member jurisdictions to address the risks to orderly markets resulting from extreme volatility events. In particular, the report discusses:
- the various automated mechanisms used by trading venues to halt or constrain trading during extreme volatility events;
- the process for establishing and monitoring the thresholds and reference prices used in these mechanisms;
- how and what kind of information regarding the design, operation and triggering of these mechanisms is disseminated to regulatory authorities, marketplace participants and the public; and
- the level of communication between trading venues both inside and outside the trading venue’s home jurisdiction.
The consultation report proposes a number of recommendations intended to assist trading venues and regulatory authorities when making decisions about the implementation, operation and monitoring of volatility control mechanisms. These include:
- trading venues should have volatility control mechanisms to manage extreme volatility and that these mechanisms should be appropriately calibrated and monitored;
- regulatory authorities should consider what information they require to effectively monitor the overall volatility control mechanism framework in their jurisdiction, and make sure that trading venues maintain relevant records; and
- information about volatility control mechanisms and when they are triggered should be made available to regulatory authorities, market participants and if appropriate, the public.
The deadline for comments on the consultation report is 6 May 2018.