The Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada say that they are studying the market plunge that took place on May 6, and possible regulatory responses.

The CSA and IIROC report that they “are engaged in active dialogue” with other regulators, marketplaces and market participants “to examine issues related to the market volatility”, and the increased reliance on electronic trading.

As a result of that extreme volatility on the afternoon of May 6, IIROC repriced some trades and canceled others.

The CSA and IIROC say they are examining the existing circuit breaker policy, the trading rules, and electronic trading issues, including the possible need to standardize parameters used by Canadian stock exchanges and alternative trading systems to freeze trading when large price changes occur.

“Currently, the use of these parameters is not consistent amongst the exchanges and ATSs and the CSA and IIROC are addressing that inconsistency,” they say.

“In today’s dynamic markets, where trading is increasing in speed and complexity, the CSA and IIROC are looking very closely at the risks involved in electronic trading,” said Jean St-Gelais, CSA chair and president and CEO of Quebec’s Autorité des marchés financiers.

“The events of May 6 indicate how rapidly market conditions can change. The CSA and IIROC are addressing the key risk factors and are committed to reviewing the existing market regulatory framework to ensure protection of investors and market integrity.”

IE