Mechanism to prevent disturbances in pricing

UniCredit Bank S.A.
Tue, 31/12/2019

Bucharest Stock Exchange introduced a "volatility interruption mechanism"          


Starting with 2 December a new volatility interruption mechanism has been applied by the Bucharest Stock Exchange (BVB) to blue chip companies.

Aiming to prevent artificial disturbances of the market price and to ensure a high degree of market quality, the Bucharest Stock Exchange decided to introduce a new volatility interruption mechanism that will be applied to shares in BET and BET-FI indices, as well as international shares from the regulated market. This new mechanism is replacing the old mechanism of price management under volatile conditions.

The new volatility interruption mechanism defines three different price tunnels: static, dynamic and maximum. The mechanism can be activated for a financial instrument during the auction stage and during continuous trading on its main market, which consists of the registration of an unscheduled auction stage in order to give investors and market participants enough time to digest and react to new market conditions. In case the market is in the fixing phase, the market operator can extend the auction period of time, provided that the potential fixing price exceeds a certain level. In case the market is in a continuous trading phase and the price of a trade exceeds a certain limit, the BVB can switch the market to an auction stage for a short period of time.

For better neutrality and objectivity of the conditions to determine market prices, the BVB will randomise the duration between a minimum of 3 minutes and a maximum of 3 and ½ minutes for the extended pre-open, volatility interruption and extended volatility interruption stages. According to the BVB, the calibration of the parameters applicable to the volatility interruption mechanism was created based on European principles and experience in the field.

Marin Stoica, Senior Global Securities Services Account Manager, GSS Romania