The Board of the International Organization of Securities Commissions (IOSCO) is seeking feedback on its proposed recommendations to assist trading venues and regulatory authorities in the implementation of mechanisms to manage extreme volatility.
Extreme volatility in securities markets can undermine IOSCO’s objective of ensuring that markets are fair, efficient and transparent, weaken market integrity and reduce investor confidence. Following recent extreme volatility events, regulatory authorities and trading venues have been reviewing their approaches to managing extreme volatility; volatility control mechanisms seek to minimize market disruption triggered by events such as erroneous orders, by halting or temporarily constraining trading.
In the consultation report Mechanisms Used by Trading Venues to Manage Extreme Volatility and Preserve Orderly Trading, IOSCO explores the measures that trading venues use to address the risks posed by extreme volatility. Specifical recommendations provide 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
• communication amongst trading venues should be considered where the same or related securities are traded on multiple trading venues in a particular jurisdiction.
(Source: IOSCO, http://www.iosco.org)