Equities
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The Investment Industry Regulatory Organization of Canada issued a plan Thursday to create single-stock automatic circuit breakers “to address rapid, significant and unexplained price movement … that calls into question whether there is a fair and orderly market for that security.”



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Single-stock circuit breaker eyed for Canada






Canada’s stock market regulator is proposing a mechanism to temporarily halt trading in individual stocks after dramatic price movements.

The Investment Industry Regulatory Organization of Canada issued a plan Thursday to create single-stock automatic circuit breakers “to address rapid, significant and unexplained price movement … that calls into question whether there is a fair and orderly market for that security.”

The plan is part of ongoing efforts by the industry to address concerns caused by the “flash crash” trading frenzy last spring.

While circuit breakers already exist for broader market movements, IIROC must manually review trading in an individual security and decide whether it should be halted.

In “flash crash” trading on May 6, however, this manual process could not keep up with rapid price drops in a number of securities.

“Current practice is not adequate where there is a need to halt trading in multiple securities across multiple marketplaces, all in a short window of time,” IIROC said in a statement.

IIROC launched a review of market controls this spring after North American stocks fell by hundreds of points within minutes on May 6, then swiftly reversed and recovered to finish almost unchanged by the end of the day. Regulators said uncontrolled price declines in a few securities spread to trigger a broader market selloff.

U.S. regulators introduced single-stock circuit breakers in June on a trial basis in response to the May trading.

IIROC’s similar new policy would see trading halted for five minutes for TSX-listed shares, with the possibility of an extension. Stocks listed on the TSX Venture Exchange and the CNSX exchange would be halted for 10 minutes because of lower trading liquidity on those exchanges.

TSX-listed stocks would be halted when the stock price rises or falls by at least 10 per cent, or 10 trading increments, whichever is greater, within five minutes. Stocks listed on the TSX Venture or CNSX would be halted after movements of at least 20 per cent, or 20 trading increments, over 10 minutes.

A trading increment is one cent on stocks trading at more than 50 cents per share, and half a cent for those of 50 cents or less.

The proposed circuit breakers would be in effect in Canadian markets from 9:50 a.m. to 3:40 p.m., which means they would not be in place for 20 minutes at the opening and closing of trading.

IIROC said the new mechanism would be part of a “multi-tiered” approach for controlling short-term price volatility that includes the existing obligations of securities firms to supervise trading, and “effective marketplace volatility controls” across exchanges.

“The single-stock circuit breaker would represent the third level of controls,” IIROC said.

The regulator has asked for public comment on the proposal until Jan. 17.




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