The Investment Industry Regulatory Organization of Canada (IIROC) recently proposed a set of principles intended to guide it as it considers formal proposals to establish marketplace price and volume thresholds. Specifically, two guiding principles are proposed, namely (i) that marketplace thresholds should generally preclude the execution of orders that would otherwise require regulatory intervention by IIROC due to the trigger of a single-stock circuit breaker or the application of policies regarding the variation and cancellation of trades; and (ii) that the application of marketplace thresholds should have the least amount of impact on price discovery and access to tradable liquidity.
The release considers existing mechanisms to control volatility and notes that IIROC has issued guidance or request for comments with respect to single-stock circuit breakers, regulatory intervention for the cancellation or variation of trades and market-wide circuit breakers. IIROC notes, however, that these mechanisms are based on price impact and are not directly affected by the volume of an order. Ultimately, IIROC requests comments on all aspects of controlling price volatility in the Canadian marketplace and specifically on a number of questions, including: (i) whether marketplaces should be required to adopt a form of marketplace thresholds; (ii) whether the proposed guiding principles are appropriate and whether there are additional ones that should be considered; and (iii) whether marketplace thresholds should be more flexible during periods of natural volatility. Comments are being accepted until August 8, 2012.
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