TORONTO, Sept 9 (Reuters) - A dominance of sell orders at the open of Canadian stock trading on May 6, followed by a suspected slowing of computer-driven orders, contributed to an unusual slide in share prices during the session, regulators said on Thursday.
The review of all trading on May 6 by the Investment Industry Regulatory Organization of Canada (IIROC) found a mix of reasons why the Toronto Stock Exchange's main index may have dropped nearly 3.8 percent, before quickly recovery. No erroneous orders, computer glitches, or futures or options trading were found to have caused the decline.
IIROC, the self-regulatory group that oversees all investment dealers and trading activity on debt and equity marketplaces here, focused on 47 securities that demonstrated the most unusual price movements.
Some factors that added to the sell-off included already volatile world markets and a 'mismatch of liquidity,' with a dominance of sell orders from the open of trading. As well, a number of electronic traders rapidly withdrew from the Canadian markets, causing a dramatic decline.
Finally, the triggering of a type of order, or 'stop loss orders,' was seen as a key reason for the deepest price slides my many less-heavily traded stocks under review.
Regulators found the Canadian market reacted quickly to a U.S. stock market decline, with the TSX's decline and recovery lagging Wall Street by about two minutes.
The unexpected rout rattled stock markets across North America, with Toronto's S&P/TSX composite index sliding 450 points, or 3.8 percent, and then quickly recovering to finish the day down just 33 points.
IIROC said it reviewed all trading on May 6 in Toronto Stock Exchange, TSX Venture Exchange and Canadian National Stock Exchange-listed securities across nine marketplaces.
It made five recommendations to better handle extreme market volatility including a review of the current market-wide circuit breaker levels and whether Canada should adopt single-stock circuit breakers, as well as adopt harmonized 'volatility controls.'
Circuit breakers are essentially designed to slow or stop trading when markets become extremely volatile.
As well, dealers should consider how to manage a type of order known as 'stop loss orders' in the current high-speed, multi-market environment, while regulators should review price policies especially when there are unreasonable price changes.
The assessment coincides with a probe by U.S. regulators. Securities watchdogs there are have not uncovered a single cause.
(Reporting by Jennifer Kwan) Keywords: CANADA/REGULATOR (jennifer.kwan@thomsonreuters.com; +1 416 941 8178; Reuters Messaging: jennifer.kwan.reuters.net@reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The review of all trading on May 6 by the Investment Industry Regulatory Organization of Canada (IIROC) found a mix of reasons why the Toronto Stock Exchange's main index may have dropped nearly 3.8 percent, before quickly recovery. No erroneous orders, computer glitches, or futures or options trading were found to have caused the decline.
IIROC, the self-regulatory group that oversees all investment dealers and trading activity on debt and equity marketplaces here, focused on 47 securities that demonstrated the most unusual price movements.
Some factors that added to the sell-off included already volatile world markets and a 'mismatch of liquidity,' with a dominance of sell orders from the open of trading. As well, a number of electronic traders rapidly withdrew from the Canadian markets, causing a dramatic decline.
Finally, the triggering of a type of order, or 'stop loss orders,' was seen as a key reason for the deepest price slides my many less-heavily traded stocks under review.
Regulators found the Canadian market reacted quickly to a U.S. stock market decline, with the TSX's decline and recovery lagging Wall Street by about two minutes.
The unexpected rout rattled stock markets across North America, with Toronto's S&P/TSX composite index sliding 450 points, or 3.8 percent, and then quickly recovering to finish the day down just 33 points.
IIROC said it reviewed all trading on May 6 in Toronto Stock Exchange, TSX Venture Exchange and Canadian National Stock Exchange-listed securities across nine marketplaces.
It made five recommendations to better handle extreme market volatility including a review of the current market-wide circuit breaker levels and whether Canada should adopt single-stock circuit breakers, as well as adopt harmonized 'volatility controls.'
Circuit breakers are essentially designed to slow or stop trading when markets become extremely volatile.
As well, dealers should consider how to manage a type of order known as 'stop loss orders' in the current high-speed, multi-market environment, while regulators should review price policies especially when there are unreasonable price changes.
The assessment coincides with a probe by U.S. regulators. Securities watchdogs there are have not uncovered a single cause.
(Reporting by Jennifer Kwan) Keywords: CANADA/REGULATOR (jennifer.kwan@thomsonreuters.com; +1 416 941 8178; Reuters Messaging: jennifer.kwan.reuters.net@reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.