Global Recommendations for Trading Venues to Manage Extreme Volatility

The International Organization of Securities Commissions has published a report on mechanisms used by trading venues to manage extreme volatility and preserve orderly trading. Following its consultation earlier this year, IOSCO is making eight recommendations for trading venues and their regulators to consider when implementing, operating and monitoring volatility control mechanisms to preserve orderly trading. The recommendations are:

1. Trading venues should establish and maintain appropriate volatility control mechanisms during trading hours to manage extreme volatility and preserve orderly trading in a financial instrument on the market.
2. Trading venues should regularly monitor volatility control mechanisms to ensure that they are working as designed and to identify circumstances that would require the mechanisms to be re-calibrated.
3. Trading venues should ensure that volatility control mechanisms are appropriately calibrated by considering the following non-exhaustive list of elements:(a) the nature of the financial instrument or underlying asset; (b) the liquidity or trading profile of the financial instrument; (c) the volatility profile of the financial instrument or underlying product; (d) volatility control mechanisms in place for related financial instruments and/or markets; and (e) price of the financial instrument.
4. Trading venues should make available upon request by their regulatory authority information about the execution of any volatility control mechanism.
5. Trading venues should communicate sufficient information to market participants and, if appropriate, the public, for them to understand the nature and operation of the volatility control mechanisms used.
6. Trading venues should promptly make available to market participants, and if appropriate the public, information regarding the triggering of a volatility control mechanism.
7. Where the same or related instruments are traded on multiple trading venues in the same jurisdiction, trading venues should communicate as appropriate when volatility control mechanisms are triggered. Where the same or related instruments are traded in different jurisdictions and the mechanism is triggered, communication may be appropriate.
8. Regulatory authorities should consider what information is required for them to effectively monitor the overall volatility control mechanism framework in their jurisdiction and should ensure that trading venues maintain relevant records.

View the report.

View details of IOSCO's consultation.