The WFE responds to IOSCO's consultation on VCMs

By: The WFE Regulatory Affairs Team May 2018

The WFE has responded to IOSCO's Consultation Report on 'Mechanisms used by trading venues to manage extreme volatility and preserve orderly trading'.

The WFE supports IOSCO's initiative to set out recommendations for authorities and exchanges to consider when designing and implementing volatility control mechanisms (VCMs). Systems to manage extreme volatility can enhance investor confidence, and contribute to the maintenance of trust in financial markets, and the preservation of orderly markets.

The WFE's response can be summarised as follows:

  • The WFE agrees that avoiding a one-size-fits-all template for volatility control is important, and encourages policymakers and regulators to adopt a flexible, principles-based approach. Venues must have the ability to tailor and improve systems and controls to meet the needs of their markets and market participants as circumstances dictate.
  • VCMs are most effective when the costs and benefits of interventions are carefully analysed. The efficiency of these tools should be regularly examined against their objectives.
  • The WFE welcomes IOSCO's recommendations on co-ordination between trading venues during periods of market stress. Exchanges should also retain the flexibility to determine the appropriateness and form of communication to market participants and the wider public when a mechanism is triggered.

Nandini Sukumar, CEO, WFE commented: "VCMs are an important element of a broader toolkit that trading venues use to preserve orderly markets. The WFE and its members are committed to operating fair, efficient and transparent markets, and we agree that VCMs should be designed in a holistic way, and regulated using a principles-based approach, taking into consideration different market conditions. Whilst we advocate that global markets should have global standards, implemented by national authorities to support international regulatory coherence, there needs to be appropriate flexibility in local implementation."

Richard Metcalfe, Head of Regulatory Affairs, WFE added: "Volatility controls can effectively protect investors, and contribute towards market integrity, aims which are core to exchanges' social purpose. The WFE is therefore pleased to contribute to the VCM debate, and keen to continue working with international authorities to ensure the ongoing safety of global financial markets."

You can read the full response to IOSCO here.

The WFE also recently published a report which examines processes and policies in place to support market integrity. You can read the report here.