market architecture of selected stock exchanges in ... - Gilles Daniel

43time, which is needed to refill it after a depletion of one side of the book, could effectsignificant price fluctuations. In a quote-driven market, market makers commit toprovide continuous liquidity, hence balance short term excess volatility.The second form of trading interruptions identified by the underlying survey iscircuit breakers. 35 Circuit breakers provide coordinated, cross-market trading haltsduring a severe market decline. Many stock exchanges have pre-determined circuitbreakers that are triggered when a reference index exceeds pre-set limits causing theentire market to halt. The duration of a trading halt by circuit breakers depends onthe percentage of decline and the time circuit breakers are triggered during a tradingday. If a steep decline in the market occurs, trading will be halted longer; if this kindof trading halt is triggered closer to the end of the trading day, the exchange will stayclosed for the rest of that day.Furthermore, banking holidays and system malfunction can be seen as trading halts.However, since they do not facilitate the dissemination of information they are notincluded within the scope of the underling report published by the IOSCO. However,stock exchanges may have rules that govern those issues.Issues related to trading interruptions of multi-listed securitiesSecurities can be listed on only one exchange, some are listed on more than onemarket within the responsibility of a single institution, or they can be listed on morethan one market in different jurisdictions. Thus, when there is a trading interruptionin a multi-listed security, market participants may be able to trade the halted securityin another trading venue. Due to the possibility of arbitrage, the IOSCO analyzed thecircumstances, in which imposing a parallel trading halt should be considered.Within a jurisdiction, issues such as the degree of transparency of the rules and thepossibility of arbitrage are not that severe as the ones of a security listed on severalexchanges. When a market imposes a trading halt or has the intention to do so, itimmediately informs all the other markets where the security is traded within thisunity. Subsequently, the markets concerned communicate directly with each other35 In the U.S. stopping the market is referred to circuit breaker in Germany it is referred to volatilityinterruption (Cf. Schwartz, 2001)