Bourses, alternate trading venues, and traders are preparing for enormous volumes and high volatility around the Brexit vote.
System capability has been improved, avoidable software modifications have been put on hold to ensure maximum reliability. In certain conditions, trading regulations have been relaxed to avoid another global market meltdown.
Firms are learning from several contingencies in the past, including the surge in trading because of anxieties regarding China’s growth in August 2015. They are confident of handling the high volumes projected after the UK referendum outcome becomes clear.
According to Mark Hemsley, chief executive of Bats Europe (the biggest equity exchange by value traded in the region), “its markets had been tested to handle volumes and message rates multiple times our highest volume day on record, which was 24 August 2015, when we handled €28.3 billion”.
Forecasting higher volumes, Euronext (operates exchanges in France, Belgium, Portugal, and the Netherlands), reported it was introducing “special measures” for the entire week. It is expected to announce a “fast market” during the period with regard to its equity options and index options – a measure that is used during market volatility (relaxing the liabilities of market players and broadening price limits).
Significant developments in trading technology imply that trading venues are now extremely robust. Many exchanges and investment banks have now initiated ‘code freezes’, a process mostly implemented during holidays where technology enhancement projects are placed on hold to decrease operational risks.
ITG (an agency broker) has established a contingency plan for “load shedding”, a practice in which customers would be turned away if volumes increase enormously. It has communicated with clients about increasing the order limits on a daily basis (which determine the trading volume on a given day). They have to be adjusted during extremely high volume days to ensure the clients are not exposed to undue risks.
Clearing houses along with their members are also getting ready for extra calls on margin (the collateral used to back up trades).
These measures indicate that firms are prepared to handle the anticipated significant increase in trading volumes and high volatility.
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