IIROC Provides Guidance On Order Execution Obligations In Volatile Markets

On May 6, 2010, Canadian marketplaces experienced very unusual levels of market volatility — a "Flash Crash." Some securities dropped more than 20 per cent from their previous day's closing price, with most of the decline occurring in a 15-minute window. Some stocks fell more than 10 per cent in less than one second, and recovered just as quickly. Less dramatic price declines in individual securities continue to occur regularly.

This increased market volatility is associated with an increase in the ratio of orders to trades and with high-frequency electronic trading driven by computerized trading algorithms. These traders have direct high-speed access to multiple marketplaces. As the activities of some of these direct access traders can be disruptive, securities regulators are proposing comprehensive rules to increase supervision of these trading practices and to curb or prohibit them when they interfere with orderly markets.