The International Organization of Securities Commissions (IOSCO), the global standard setter for securities market regulators, published its final report on Market Outages on June 6. The final report follows a consultation that IOSCO conducted last December.
Operational resilience remains a key global priority for securities regulators, as the resilience of trading venues is vital for the smooth operation of global capital markets. Recent market outages have shown that trading venues can take different approaches regarding the coordination and communication of recovery pathways for the affected market participants and the general public.
Market outages occur when a technical problem or an operational issue causes a disruption of trading output or the orderly trading of a trading venue, leading to the suspension of trading. Market outages can be highly disruptive.
Market resilience and investor confidence
Building from previous IOSCO reports and new information gathered through a members’ survey and December’s consultation, the final report addresses the need for improved preparedness and management of market outages to ensure market resilience and investor confidence.
It 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.
The good practices cover five key areas.
1. Outage plans
Establish and publish an outage plan with clearly defined roles and responsibilities.
2. Communication plans
Implement a communication plan, which provides, through an appropriate communication channel, initial notice (as soon as possible) of the outage to both market participants and the public, and, thereafter, with regular updates on the status of the outage and the recovery pathway.
3. Reopening of trading
Communicate information relevant to the reopening of trading in a timely and simultaneous manner to all market participants, providing clarity on the status of their orders and ensuring they receive an adequate period of notice before the resumption of trading.
4. Closing auctions / closing prices
Ensure the processes and procedures that trading venues will follow to operate a closing auction and/or to establish alternative closing prices are published in the outage plan and communicated to all market participants during an outage.
5. Post-outage plans
Conduct and share with the relevant regulators a lessons-learned exercise of the market outage and adopt a post-outage plan, with clearly defined timelines and allocation of responsibilities for remediation, designed to reduce the likelihood of future incidents and to improve the ability of the trading venue to effectively respond to outages.
Flexibility
These good practices aim to assist regulators, trading venues and market participants in preparing for, and managing, future market outages and thereby helping improve market-wide resilience. They have been designed to be generally applicable to market outages caused by different types of root causes. IOSCO said, “the good practices offer flexibility for adoption across various trading venues, asset classes, and market structures.”
While the Final Report focuses on equities listing trading venues, the findings are also relevant to other trading venues, including non-listing trading venues and derivatives trading venues.
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.”