The Investment Industry Regulatory Organization of Canada (IIROC) has published final guidance on Tuesday that will require trading venues, including dark pools, to adopt price thresholds designed to prevent excessively violent trading events at a time when global markets are experiencing extraordinary volatility.
The guidance, which is to take effect on Aug. 25, 2016, will require all Canadian marketplaces that use IIROC as a market regulator to build a mechanism to implement these thresholds.
The guidance sets out that marketplaces must adopt thresholds that apply during the traditional trading hours of 9:30 a.m. to 4:00 p.m. ET; they must set specific price thresholds beyond which a marketplace may not execute an order unless allowed by a market integrity official; and it establishes the thresholds that must be used for different types of securities. The guidance also requires that the operation of these thresholds be disclosed publicly.
The adoption of these controls aims to help reduce short-term, unexplained price volatility and to address risks arising from electronic trading.
“The operation of marketplace thresholds reflects IIROC’s commitment to maintaining fair and orderly markets while lessening the need for regulatory intervention,” says Victoria Pinnington, IIROC’s vice president, trading review and analysis, in a statement. “Marketplace thresholds complement a series of IIROC reforms that help enhance market integrity and foster investor confidence.”
In addition to these new thresholds, IIROC has also introduced single-stock circuit breakers, beefed up the operation of market-wide circuit breakers and introduced new control requirements at the dealer level in recent years to help reduce the number of erroneous trades and to curb unexplained short-term price volatility.