This Guidance Note (“Notice”) provides guidance on the exercise of the existing authority under UMIR1 to halt trading in a particular security as a result of a single-stock circuit breaker (“SSCB”). IIROC previously issued guidance2 (“Prior Guidance”) that introduced SSCBs on an “initial implementation phase” basis on February 2, 2012. This Notice expands on the initial SSCB program to include a broader range of listed securities than those included in the initial implementation phase and expands the time during the trading day when SSCBs operate. Listed securities not covered by the SSCB program will continue to be subject to regulatory intervention by a Market Integrity Official by exercising his or her existing authority under UMIR.3
Effective February 2, 2015, this Notice repeals and replaces IIROC Notice 12-0040.
- 1. Rule 10.9(1)(a) of UMIR provides a Market Integrity Official with the power to delay, halt or suspend trading at any time and for such a period of time as the Market Integrity Official may consider appropriate in the interest of a fair and orderly market.
- 2. See IIROC Notice 12-0040 - Rules Notice – Guidance – UMIR – Guidance Respecting the Implementation of Single-Stock Circuit Breakers (February 2, 2012).
- 3. See IIROC Notice 12-0258 – Rules Notice – Guidance – UMIR - Guidance on Regulatory Intervention for the Variation or Cancellation of Trades (August 20, 2012)
Operation of SSCBs
Until changed with the issuance of further guidance, SSCBs:
- apply to:
- provide for a trigger level such that there would be a halt in the event of a price increase or decline of:
- at least 10% and 20 trading increments in a five-minute period between 9:50 a.m. and 3:30 p.m.,
- at least 20% and 40 trading increments in a five-minute period between 9:30 a.m. and 9:50 a.m., or
- at least 20% and 40 trading increments in a five-minute period during the 30- minute period following the resumption of trading after a regulatory halt, including a regulatory halt caused by the triggering of a SSCB;
- provide that a Market Integrity Official may, with notice, temporarily 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;
- apply from 9:30 a.m. to 3:30 p.m.;
- provide an initial trading halt of 5 minutes that may be extended for a further 5-minute period;
- exclude from the trigger calculation prices of trades that may execute outside the “best bid – best ask” spread; and
- would result in the cancellation of any trade that executed at more than 5% beyond the trigger level.
Under the Prior Guidance, SSCBs only applied to a particular listed security that is either a constituent of the S&P/TSX Composite Index or an ETF, the assets of which is comprised principally of listed securities. In addition to those securities included in the initial implementation phase, this Notice expands the universe of listed securities subject to a SSCB to include all securities that are actively traded.
For the purposes of this Notice, a listed security is considered actively-traded if the particular listed security traded, in total, on one or more marketplaces as reported on a consolidated market display during the three calendar months ending immediately preceding the determination:
- an average of at least 500 times per trading day, and
- with an average trading value of at least $1,200,000 per trading day.
SSCBs applied 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. Based on data from February 2013, the universe of listed securities to which SSCBs would apply accounts for approximately 9% of listed securites, approximately 88% of total trades and approximately 92% of the total value traded.
It is important that SSCBs are not applied too widely and inadvertently capture price movements that may be representative of the normal trading patterns of a particular security, such as those securities which are less liquid, lower value and historically demonstrate higher short-term volatility. In such cases, short-term price movements may not be “unexplained”. For these listed securities, their trading patterns and liquidity profiles are such that automated trading halts are neither practical nor appropriate. These securities will continue to be subject to regulatory intervention by a Market Integrity Official through the exercise of his or her powers under UMIR 10.9.
SSCB Trigger Levels
A SSCB will be triggered for a particular security in the event of a price increase or decline, in a 5-minute period, of at least 10% and 20 trading increments. The inclusion of a minimum tick requirement avoids the inappropriate triggering of SSCBs for securities with lower value which historically demonstrate higher short-term volatility when measured only by percentage price movement. To account for additional volatility that may be present in the post-open (9:30 a.m. to 9:50 a.m.) and in the 30-minute period following the resumption of trading after a regulatory halt (including a regulatory halt caused by the triggering of a SSCB), a SSCB will be triggered for a particular security only in the event of a price increase or decline, in a 5-minute period, of at least 20% and 40 trading increments. A Market Integrity Official may, with notice, temporarily widen the threshold of a particular security in response to an extraordinary event where increased volatility may be considered “normal” trading activity.
For the purposes of determining a price increase or decline, IIROC compares each trade price of a security traded on a marketplace (the potential “triggering” trade) to a reference price. For the purposes of this calculation, the reference price is any transaction in that particular security in the 5-minute period immediately preceeding the potential “triggering” trade. Generally speaking, to determine a reference price IIROC looks to the lowest price in the 5-minute period to determine a price increase, and looks to the highest price in the 5-minute period to determine a price decline. If the last trade occurred more than five minutes earlier, no reference price is calculated and the SSCB will not trigger.
The price of any trade that is permitted by UMIR or by the Order Protection Rule in National Instrument 23-101 to be executed outside of the “best bid – best ask” spread will not trigger a SSCB nor will it be used in calculating price movement for the purposes of establishing a “trigger” point. Prices of trades (other that those described above) that execute on dark marketplaces are included in the calculation of the reference price in the same way that these trades are currently included in the calculaton of the “last sale price” under UMIR.
Length of Trading Halt
Following the triggering of a SSCB, the “triggered” security is halted for a period of five minutes, subject to the ability of a Market Integrity Official to extend the halt by a further five minutes if a significant imbalance of buy and sell orders remains.
If during the 5- or 10-minute (as applicable) halt, IIROC determines that a further halt is required, for instance to facilitate the dissemination of material news that may have leaked into the market, IIROC will send an electronic notice to market participants and replace the SSCB halt with a traditional regulatory halt.
Unless such a regulatory halt is imposed, each marketplace may resume trading at the expiry of the 5- or 10-minute period. Immediately following the imposition of the halt following the triggering of a SSCB, marketplaces should prepare for the resumption of trading by either:
- entering a “pre-open” state to allow for order entry and the dissemination of an indicated “calculated opening price”; or
- permitting order entry and using a “shotgun” opening at the resumption of trading.
Trading Hours during which SSCBs may be Triggered
SSCBs are operational between the hours of 9:30 a.m. and 3:30 p.m. IIROC is of the view that the post-open (9:30 a.m. – 9:50 a.m.) is a period of natural volatility during which care must be taken to avoid the unnecessary triggering of SSCBs. This additional volatility is taken into account by increasing the required price movement to 20% and 40 trading increments during this period.
During periods when SSCBs are not operational, including the period of 3:30 p.m. – 4:00 p.m., a Market Integrity Official continues to have the ability to exercise his or her powers to halt or suspend trading in a particular security, as provided under UMIR 10.9(1)(a).
Handling Trades Executed after the Triggering of a SSCB
IIROC expects, given the volume and speed of trading in the current market, that some trades will occur after the triggering of a SSCB but prior to the invocation of the trading halt across all marketplaces. A Market Integrity Official will use his or her authority granted under Rule 10.9(1)(d)6 of UMIR to cancel any trade that is more than an additional 5% beyond the reference price than the calculated trigger price, as these trades are clearly in a zone where a person would not have had a reasonable expectation of execution at that time. Any trades that execute at a price less than an additional 5% beyond the trigger price will stand.
For greater clarity, the chart above illustrates the treatment of trades occurring immediately following the triggering of a SSCB and prior to the invocation of the trading halt based on a 10% price movement to trigger the SSCB and a further price movement of 5% before the cancellation of a trade.
There are certain circumstances when a SSCB should not be triggered even though there may be the requisite movement in market prices over the specified period of time. In particular, a SSCB will not be invoked for the balance of the trading day following the triggering of the market-wide circuit breaker (as the invocation of the market-wide circuit breaker indicates that there is a prevailing market sentiment which is not related to liquidity issues for that particular security).
Effective February 2, 2015, this Notice repeals and replaces the guidance set out in Rules Notice 12-0040 – Guidance Respecting the Implementation of Single-Stock Circuit Breakers (February 2, 2012).
- 4. A description of the S&P/TSX Composite index is available here.
- 5. In UMIR, an Exempt Exchange-traded Fund means a mutual fund for the purposes of applicable securities legislation, the units of which:
(a) are a listed security or a quoted security; and
(b) are in continuous distribution in accordance with applicable securities legislation
but does not include a mutual fund that has been designated by the Market Regulator to be excluded from the definition.
- 6. UMIR 10.9(1)(d) provides that a Market Integrity Official may, in governing trading in securities on the marketplace, vary of cancel any trade which, in the opinion of such Market Integrity Official, is unreasonable or not in compliance with UMIR or any Policy.