Global exchange operator Nasdaq OMX Group has introduced new volatility guards for its Nordic and Baltic markets to help protect investors and listed companies during uncertain market conditions.
In unpredictable trading periods, the Nasdaq OMX Nordic volatility guards will pause trading in listed equities and exchange-traded funds for a set period with the intention of restoring an orderly market. They will apply to domestic markets in Sweden, Denmark and Finland from 30 September and have been launched today in Iceland, the three Baltic markets operated by Nasdaq OMX in Estonia, Lithuania and Latvia and the First North growth market.
The guards will come into effect if an order deviates in excess of a set percentage from the last sale price or the reference price of the relevant security, usually the day's opening price. The volatility guards will halt continuous trading before entering the market into an auction period for between 60 and 180 seconds. After this point, continuous trading will be resumed.
For example, if an order for a blue chip stock in the domestic Nordic markets Nasdaq OMX operates deviates by 3% from the last traded price, trading will be paused for 60 seconds. This is raised to 180 seconds if an order is 10% away from the designated reference price.
“Building on the previous common Nordic safeguard system, the updated Nordic volatility guards will meet the demands of modern high speed trading environments and advanced trading technologies”, said Hans-Ole Jochumsen, president of Nasdaq OMX Nordic. “The introduction of volatility guards will further strengthen investor and listed company confidence in the price formation integrity of our Nordic and Baltic equities markets. One of the important lessons that we have learned from the recent market volatility and the financial crisis is the importance of a coordinated strategy to combat market instability, as well as the new complexity of modern, integrated and highly electronic markets.”
The implementation of volatility guards for Nasdaq OMX's Nordic markets follows the introduction of a similar safeguard for its US markets shortly after the 6 May ”flash crash', which temporarily obliterated almost US$1 trillion from market value.
Those schemes were criticised after share trading in big blue chip stocks was halted, triggered by relatively small erroneous trades.