Trading safeguards on our markets

Euronext’s general philosophy is to only halt trading under extreme circumstances. To achieve this, we do not rely on circuit-breakers alone, but on a full set of trading safeguards. Over the years, Euronext has developed a complete set of mechanisms that go beyond market protection and are designed to prevent situations of disorderly markets and detect unusual events. All our market protection mechanisms are discussed and validated with our regulators, ensuring that we are constantly improving the safety net across all our regulated markets. 

Cash markets

Prevention

Market protection mechanisms include:

• the capacity to reject aberrant orders (unusually large in size or in units/price) before they enter the market;
• the capacity to halt instruments subject to single orders that might disrupt the market;
• the capacity to prevent significant price variations (dynamic or static collars*).

Detection 

A comprehensive set of algorithm-powered alerts that are triggered by our monitoring systems and handled in near real-time by analysts from our Cash Market team ensures fair and orderly markets as well as investigation and resolution where needed.

Reservation periods

Dynamic and static collars constitute the first and second layers of Euronext’s circuit-breaker mechanism, respectively. The dynamic reference price and the static reference price are used to calculate both collars. The dynamic reference price changes throughout the trading day after each trade, with the last traded price becoming the new reference. The static reference price remains the same during all trading sessions unless it is manually changed by Euronext's Market Operations team.

Reservation periods limit the impact of any unexpected sharp price movements whilst giving the market ample time to review orders and investment decisions before trading resumes. The table below indicates the threshold for these collars:

For Borsa Italiana markets, all the parameters are captured in the "Guide to Parameters’’.

_{^*Dynamic collars are based on the dynamic reference price, which is taken from the last traded price and is amended with each new trade throughout the trading day. This safeguard threshold automatically halts trading on a stock if its price reaches +/−5% price variation (or +/-3% if the stock is part of a flagship index) on the dynamic collar reference price.}

_{Static collars are based on the static reference price, which is taken from the opening price of the security if it has traded on the same day, or the last reference price from the previous trading day. This safeguard threshold automatically halts trading on a stock if its price reaches +/−10% price variation (or +/-8% if the stock is part of a flagship index) on the static collar reference price.}

Derivatives Markets

Derivatives trading safeguards

The trading safeguards on derivatives include:

• The capacity to reject aberrant orders either unusual in size or in price.
• The capacity to either "cool down" (allow trading within fixed collars) or reserve trading activity for a short period of time to prevent large price variations or executions at aberrant prices.

Dynamic collars

All incoming orders on the derivatives market are checked against the dynamic collars. The Dynamic Collar Reference Price (DCRP) is the reference to establish the dynamic collars, which is dynamic throughout the day.

Depending on the product type and the conditions of the market, Optiq® will use different methodologies to determine the DCRP.

A detailed explanation of how these methodologies can be utilised to arrive at the collars is provided in "How the market works".

Other derivatives trading safeguards

Next to the dynamic collar, the Euronext derivatives market uses a set of additional safeguards as a second or third layer to protect the market from either large price variations or executions at aberrant prices.

These safeguards are:

• Static collar: similar to static collars in place on the cash market, this protection limits the price movement in both the upward and downward direction by either a percentage or absolute value, based on a reference price called the Static Collar Reference Price (SCRP). The spread value is typically static and remains the same during the day, but it is possible that the Exchange alters it intraday.
• Trade Price Validation (TPV) mechanisms use collars as trading safeguards for trade validation before execution, to limit the risk of aberrant trades, and provide a fair and orderly market.
• Future Spike Protection (FSP) provides protection for the futures markets from extreme price movements within a short timeframe (e.g. in the case of a flash crash). While protecting the markets from an extreme price slide, it allows clients to continue trading safely in such volatile conditions within reasonable price limits, which are adjusted in response to market conditions
• Future Limit Protection (FLIP) works similarly to FSP, but once triggered it will instead reserve the instrument on which the boundaries were breached.

A detailed explanation of how these trading safeguards work in detail can be utilised to arrive at the collars is explained in "How the market works".

Contracts_Linked_Reference_Spread_Table.csv