Market Players Pipe Up on Lessons From Aug. 24 Market Volatility

  • Post-flash crash rules "need to be iterated" UBS official says
  • Aug. 24 trading volatility renews attention to ETF pricing

Participants in the $23 trillion U.S. stock market have become more vocal about structural changes they’d like to see after the trading turmoil on Aug. 24, according to an executive at UBS Group AG.

How to price exchange-traded funds in times of stress, triggers for trading halts, a lack of clarity on clearly erroneous trades, and the mechanics of circuit-breaker systems have been among the topics raised by UBS clients, said Vlad Khandros, global head of market structure and liquidity strategy. Some of the measures put in place to protect markets after the 2010 flash crash should be revisited, he said in a briefing with reporters in New York on Thursday.

"What we learned five years ago needs to be iterated, clearly," said Khandros. "August 24 was a lesson that for flash crash safeguards, perhaps an update is in order."

Rules created in response to the 2010 volatility have been blamed for contributing to the chaos on that day, when $1.2 trillion of U.S. market value was erased before prices partially recovered. The price bands that trigger halts in trading, for instance, were seen as exacerbating volatility, he said.

Since Aug. 24, some of the world’s largest issuers of ETFs, including BlackRock Inc., Vanguard Group Inc. and State Street Corp., have held talks with stock exchanges on potential solutions to the structural problems that plagued markets that day, Bloomberg News reported last week.

BlackRock, the world’s biggest asset manager, also released its own proposals on many of the same issues that Khandros said his clients raised. The firm proposed several changes, including thresholds for market-wide circuit breakers and altering the limits for volatility curbs to help stave off a repeat. BlackRock also suggested tighter alignment of the rules governing the equities and futures markets, an issue Khandros said UBS clients also repeatedly raised.

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