TORONTO, Feb. 21, 2013 /CNW/ - The Investment Industry Regulatory
Organization of Canada (IIROC) today issued a Notice providing guidance on market-wide circuit breakers in Canada, following
the adoption of new rules on market-wide circuit breakers in the U.S.,
to take effect April 8, 2013.
Following the May 6th, 2010 "Flash Crash", IIROC undertook a number of identified initiatives
and committed to review the current market-wide circuit breaker policy.
In the U.S., the national securities exchanges and the Financial
Industry Regulatory Authority recently received approvals for proposals
to revise their existing market-wide circuit breakers. Approximately
60% of the value of securities traded on marketplaces in Canada is in
securities which are inter-listed with markets in the U.S.
Having consulted with the industry on alternative approaches for Canada,
IIROC has determined that Canada's market-wide circuit breakers should
continue to be harmonized with those in the U.S.
"This set of market controls is intended to help mitigate extraordinary
short-term price volatility on a market-wide basis in order to maintain
fair and orderly markets," said Susan Wolburgh Jenah, IIROC President
and Chief Executive Officer.
Since their adoption in 1988, market-wide circuit breakers have been
activated only once, in 1997, in Canada and the U.S.
Market-wide circuit breakers trigger a pause in trading of all stocks
after decline of a predetermined size in a designated benchmark stock
Planned U.S. changes include using the S&P 500 Index rather than the Dow
Jones Industrial Average as the benchmark index, reducing the daily
decline thresholds for the triggers to 7% (from 10%), 13% (from 20%)
and 20% (from 30%) and cutting the resulting trading pause to 15
minutes in all cases from 30, 60 and 120 minutes, respectively.
Canada's benchmark index, the S&P/TSX Composite, is highly correlated
with U.S. indexes. IIROC found the S&P 500 would have triggered a
Level 1 (7%) circuit breaker on nine occasions since the start of 2008
if the proposed changes in the U.S. had been in place. Movement in the
Canadian index would have tripped a Level 1 breaker five times during
the same period.
Market-wide circuit breakers are an important volatility control. Other
controls are applied at the individual stock level and range from order
filtering and risk management obligations at the dealer level, to
volatility controls by the marketplaces themselves and single-stock
circuit breakers (SSCBs).
* * *
IIROC is the national self-regulatory organization which oversees all
investment dealers and trading activity on debt and equity marketplaces
in Canada. Created in 2008 through the consolidation of the Investment
Dealers Association of Canada and Market Regulation Services Inc.,
IIROC sets high quality regulatory and investment industry standards,
protects investors and strengthens market integrity while maintaining
efficient and competitive capital markets.
IIROC carries out its regulatory responsibilities through setting and
enforcing rules regarding the proficiency, business and financial
conduct of dealer firms and their registered employees and through
setting and enforcing market integrity rules regarding trading activity
on Canadian equity marketplaces.
SOURCE: Investment Industry Regulatory Organization of Canada (IIROC) - General News
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Vice President, Public Affairs
Public Affairs Specialist