Dozens of exchange traded funds and notes experienced trading halts on Monday after a new program designed to prevent fast changes in share prices was implemented.
At least 40 exchange products saw trading halts on Monday when they were added to the program, according to reports.
“Most of the ETNs and ETFs trade so seldom that there probably wouldn’t have been any transactions even if they hadn’t been halted,” Bloomberg News reports. “They were set off during implementation of the protocol known as limit up/limit down that pauses securities when bid-ask spreads become too wide.”
The new exchange rules trigger trading halts if illiquid securities see their price band widen to 10%, Reuters reports. The spread between the bid and offer price of an illiquid ETP can be so wide it will readily trigger a trading halt under the new program, according to the story.
“In some cases even a small-sized order could be enough to cause the price band threshold to be exceeded, which would trigger a trading pause,” said Dennis Dick, a proprietary trader at Bright Trading LLC, in the article.
“All of these halts were triggered with a Reason Code of ‘M – the volatility trading pause when securities experience a price change of over 10% within a 5-minute period,” according to a Themis Trading blog post. “All of these halts occurred in ETFs and ETNs, and fairly illiquid ones at that. And the halts were triggered by algorithmic quoting activity that did not result in trades.”
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