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IOSCO explains how to deal with market outages

The International Organization of Securities Commissions (IOSCO) has published a report on Market Outages to address the need for improved preparedness and management of market outages to ensure market resilience and investor confidence.

The report identifies key findings from recent market outages and sets forth five good practices to assist regulators, trading venues, and market participants in preparing for, and managing future market outages and thereby helping improve market-wide resilience.

These good practices are designed to offer flexibility for adoption across various trading venues, asset classes, and market structures.

Generally applicable to market outages caused by different types of root causes, the report focuses on five key areas: Outage Plans, Communication Plans, Reopening of Trading, Closing Auctions / Closing Prices, and Post-Outage Plans.

Best practices for orderly trading during outages

Market outages, caused by technical or operational issues, disrupt trading on venues and impact price discovery, market resilience, and integrity. Despite their rarity, the effects can be significant. Therefore, appropriate responses from trading venues and regulators are essential.

In June 2022, IOSCO’s Committee on Regulation of Secondary Markets (Committee 2) was tasked with identifying key findings from recent market outages to enhance market resilience. A survey conducted in 2022 gathered data on outages from 2018 to 2022 in IOSCO member jurisdictions, focusing on equities listing trading venues.

Key Findings:

  • Market Structure and Causes: Market outages affect various parts of the trading process and can be due to technical issues or operational failures.
  • Resumption and Communication: Effective communication and clear plans for resumption of trading are crucial.
  • Impact and Responses: Outages impact market participants and may necessitate the migration of order flow to alternative venues.

Good Practices:

  • Outage Plans: Establish and publish detailed outage plans, including communication and reopening strategies.
  • Communication: Implement plans for timely communication with market participants during outages.
  • Reopening Trading: Clearly communicate the status of orders and provide adequate notice before resuming trading.
  • Closing Auctions: Outline procedures for operating closing auctions and alternative methods for establishing closing prices if needed.
  • Post-Outage Plans: Conduct lessons-learnt exercises and share with regulators to prevent future incidents and improve response strategies.

The good practices, while primarily for equities listing trading venues, can be adapted for other types of trading venues and asset classes. They are flexible to accommodate different market structures and regulatory requirements.

Isadora Tarola, Chair of the IOSCO Committee on Regulation of Secondary Markets (Committee 2), said: “Market Outages can be highly disruptive. Therefore, 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. IOSCO remains committed to supporting initiatives that promote financial stability and investor protection.”

Nicky Maan, CEO of Spectrum Markets, responded to the IOSCO report, stating: “IOSCO’s report once again highlights an issue that has been playing out across the world for years, and shows no signs of abating.

The global exchange landscape is dominated by big, legacy players relying on complex, creaking infrastructure, that in some cases is 30 or 40 years old. It’s no surprise they’re finding it hard to keep up with an increasingly demanding trading environment, whether that’s about higher volumes or evolving requirements like extended hours.

In most cases, ongoing cost pressures combined with the scale of the challenge, makes it very difficult for venues to deliver the kind of technology overhaul required. Plus, you can’t just switch off an exchange for a couple of weeks while you move everything across – it’s like trying to upgrade the London Underground: you can only tweak little bits here and there, overnight and on the weekend.

Another obstacle to change is the fact that trading systems sit within a wider ecosystem made up of many different organisations using infrastructure that may only be compatible with legacy technology, and so counterparties may not be willing or able to accommodate a switch or major upgrade on the part of the exchange.”

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