Canadian securities regulators are going to continue to follow the U.S. lead when it comes to market-wide trading halts, by harmonizing Canada’s market-wide circuit breakers with the new U.S. safety valves.
The Investment Industry Regulatory Organization of Canada (IIROC) issued a notice Thursday providing guidance on the application of market-wide circuit breakers in Canada.
The notice indicates that IIROC will continue to harmonize with the U.S., which is changing the fundamental operation of its circuit breakers on April 8.
In the wake of the so-called “flash crash” in May 2012, U.S. regulators are revising their market-wide circuit breakers, so that they are geared to the S&P 500 index instead of the Dow Jones Industrial Average, the thresholds that trigger a halt are being reduced, as is the duration of the halts.
Historically, Canadian circuit breakers have followed the U.S., given the fact that the markets are so closely linked, and there is so much inter-listed volume. However, Canadian regulators reconsidered this policy, and the operation of market halts generally, as part of their own post mortem on the flash crash.
Ultimately, they have concluded that it makes the most sense to continue following the U.S. lead, meaning that, as of April 8, halts will be triggered by declines of 7%, 13% and 20% (down from 10%, 20% and 30%), and the duration of the halts will be reduced too (to 15 minutes in all cases from 30, 60 and 120 minutes depending on the size of the decline). On days when the Canadian markets are open but U.S. markets are close, trading halts will be triggered by similar moves in the S&P/TSX Composite Index, rather than the S&P 500.
“This set of market controls is intended to help mitigate extraordinary short-term price volatility on a market-wide basis in order to maintain fair and orderly markets,” said Susan Wolburgh Jenah, president and CEO of IIROC.