New guidance from global securities regulators aims to ensure that trading venues are prepared to cope with the risk of market outages.
The International Organization of Securities Commissions (IOSCO) issued a report examining recent market outages, and setting out practices for regulators, trading venues, and market players to manage these sorts of events — with the ultimate aim of bolstering market resilience and investor confidence.
“Market outages can be highly disruptive, particularly if they occur on a listing trading venue, potentially impacting price discovery, market resilience and the integrity of financial markets more broadly,” the report said.
According to the report, software issues — including issues that arise during software upgrades, or following routine maintenance — are the most common cause of trading outages. This is followed by hardware failures, operational trouble, system capacity shortcomings and network issues.
While market outages remain relatively rare, their potential impact on trading, markets, and industry firms can be significant, the report said. As a result, trading venues and regulators need to be prepared to deal with these sorts of events, it noted.
Among other things, it recommends that trading venues develop and publish their plans for coping with outages, and that they adopt a plan for communicating with market participants and the public during an outage. That includes their plans for establishing closing prices in the event of a market failure, and for reopening markets after a disruption.
It also recommends that trading venues have post-outage plans, including procedures to analyze the cause of trading failures and a process for remediating and preventing future outages.
“It is important for trading venues to consider adopting the proposed good practices. This can contribute to market resilience and help ensure orderly trading during outages,” said Isadora Tarola, chair of the IOSCO Committee on Regulation of Secondary Markets, in a release.