This means that liquidity will typically be centralized within the primary market, as opposed to being fragmented across multiple venues for the reopening print. In my view, this attempt at a single point of transparency is essential, particularly during periods of market wide stress.
Trading Pause
It’s important to note that the SEC has set forth an exception to the above rule:
Following a trading pause, the only time trading in a security can resume outside of the primary listing venue is if the primary listing exchange is experiencing problems related to its systems or technology.
This is a precautionary measure that provides redundancy in the event of a technology breakdown. In such cases, trading would resume at the last effective price band.
If a trading pause occurs in the last 10 minutes of a trading day, the primary exchange will, if possible, attempt a closing cross procedure, rather than trying to reopen for continuous trading.
This clarifies how the exchanges would handle a trading pause after 3:50 p.m. ET.
Rather than re-establishing continuous trading for 10 minutes or less, priority is given to an orderly close.
Exchanges may create synthetic price bands when attempting to reopen after a trading pause and there is a reference price available, but no limit-up/limit-down price bands available.
How Will Amendment 12 Influence Trading?
Even a minuscule amount of time between a trading halt and the creation of a new trading range can lead to severe price dislocation for orders in the queue. The dislocation occurs when trading starts before publication of new price bands. The goal of providing synthetic (consistent) price bands across exchanges is to prevent this “leaky band” syndrome.
The changes set forth in Amendment 12 should reduce the number of repeat trading pauses in a single stock or ETF, in my view. I believe they represent progress toward establishing a more standardized process across primary listing exchanges for reopening trading following a trading pause.
This article has been republished with permission from Invesco Powershares.