On 1 August 2018, the International Organization of Securities Commissions (IOSCO) published a final report on mechanisms used by trading venues to manage extreme volatility and preserve orderly trading.

In particular, the final 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, market participants and the public; and
  • the level of communication between trading venues both inside and outside the trading venue’s home jurisdiction.

The final report identifies the use of price constraint mechanisms that reject or constrain certain orders rather than halt trading and allow trading and price formation to continue. It further identifies the importance of information sharing and communication between trading venues where securities or related asset classes are traded on multiple venues and the challenges where this occurs across jurisdictions.

The final report makes a number of recommendations to assist trading venues and regulatory authorities when making decisions about the implementation, operation and monitoring of volatility control mechanisms. Specifically, the final report recommends that:

  • 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;
  • information about volatility control mechanisms and when they are triggered should be made available to regulatory authorities, market participants, and if appropriate, the public; and
  • appropriate communication amongst trading venues should be considered where the same or related securities are traded on multiple trading venues in a particular jurisdiction or in different jurisdictions.