Canadian regulators are following their U.S. counterparts proposing the introduction of single-stock circuit breakers to avoid a repeat of the flash crash that seized markets earlier this year.
The Investment Industry Regulatory Organization of Canada is proposing to adopt single-stock circuit breakers for all securities listed on an exchange in Canada, including those that are inter-listed in the U.S. As with the US circuit breakers, when a stock’s price increases or decreases past a certain threshold, the circuit breaker would trigger a trading halt.
IIROC proposes a five minute halt for TSX-listed shares that move by 10% in less than five minutes, with the possibility that this could be extended in the case of a severe order imbalance. It proposes a 10-minute halt for the less liquid stocks listed on the TSX Venture and CNSX exchanges, triggered by a 20% price move over a 10-minute period. The circuit breakers would be in effect from 9:50 am to 3:40 pm ET.
The purpose of the mechanism, as with market-wide circuit breakers, is to pause rapid price movement that calls into question whether there is a “fair and orderly” market for a security. Regulators are introducing these tools in response to the “flash crash” on May 6, when a variety of stocks and ETFs saw their prices plunge very rapidly for no obvious reason; resulting in a number of broken trades.
IIROC notes that it already has the authority to delay, halt or suspend trading in particular securities. However, it says this 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”.
The proposal is being issued for a 60-day comment period.
IE