IIROC finalizes guidance aimed to reduce volatility

IIROC has published guidance on the establishment and operation of price thresholds by Canadian markets to further reduce short-term, unexplained price volatility and address risks arising from electronic trading. The guidance takes effect on August 25, 2016.

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IIROC currently regulates trading activity on all lit- and dark-equity marketplaces in Canada. The new guidance sets specific price thresholds for securities beyond which a marketplace precludes trading activity. A marketplace threshold is triggered when an order is received that would exceed the prescribed threshold level if executed. All marketplaces, including dark marketplaces, will be required to implement marketplace thresholds.

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Since 2010, IIROC has implemented a number of reforms to reduce the number of erroneous trades and unexplained short-term price volatility, including:

• controls at the participant level introduced through electronic trading rules in March 2013, and implementation of third-party marketplace access rules in March 2014;
• introduction of single-stock circuit breakers in February 2012, and their subsequent expansion in February 2015;
• enhancements to market-wide circuit breakers in February 2013; and
• clarification in August 2012 of IIROC’s policies and procedures on erroneous and unreasonable trades.

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