TORONTO – Canadian regulators are expanding their push to help taper high-frequency trading by expanding a single-stock circuit breakers program beyond the S&P/TSX Composite Index.
The Investment Industry Regulatory Organization of Canada had already implemented changes in 2012 that would trigger a five-minute trading half across Canadian marketplaces if the price of a stock rose by 10 per cent or more in a five-minute period.
It’s now being expanded beyond the securities included in the S&P/TSX Composite Index and exchange-traded funds made up mostly of listed securities to now include all securities that are considered “actively traded.”
The changes also extend the times when the breakers are active to include more core trading hours when all marketplaces are open, and allow more than one circuit breaker to trigger for a particular security during the same trading day.
Circuit-breakers pause trading during volatile periods to allow investors to look at the situation and decide what they want to do. They were implemented after the “flash crash” of May 2010, when billions of dollars in value were temporarily wiped from US stick exchanges.
“SSCBs are a tool to further mitigate market volatility. Together with other complementary IIROC initiatives, the expansion of SSCBs helps maintain fair and orderly markets, and fosters investor confidence,” the self-regulatory organization said.
Under the new guidelines, it would also be possible to, temporarily and with notice, widen the threshold used to calculate the trigger level of a particular security in response to an extraordinary event where increased volatility may be considered “normal” trading activity.
In the guidance notice, the regulator said applying the breakers to securities in a broad-based index “dampens extreme volatility in those securities and, by extension, the volatility of the index in which they are included.”
“These securities, together with those considered actively-traded, provide coverage of securities that represent a significant portion of total marketplace activity in terms of volume and value traded.”
The circuit-breakers would now apply to about nine per cent of listed securities, 88 per cent of total trades and about 92 per cent of the total value traded.