Triggered by COVID-19 (Coronavirus), we have seen increased fluctuations on the global stock markets since mid-February. The stock exchange infrastructure is currently being used as intensively as it was recently during the BREXIT decision and the financial crisis in 2008. As a reliable infrastructure provider, it is the task of the stock exchange, especially in turbulent times, to ensure transparent trading and to enable investors to sell or buy securities at any time. If a stock exchange closes, and this has been shown by the historical experience of 2008, this causes even greater panic among investors and irritation on the market. If the Vienna Stock Exchange were to close alone, Austrian shares would immediately be traded on alternative marketplaces with less liquidity and even greater volatility. It is a top priority for the Austrian national stock exchange to act in harmony with international trading places.
Overview of the Most Important Protection Mechanisms
On the Vienna Stock Exchange, as on many other exchanges in Europe, there are stability and protection mechanisms that have been tried and tested for decades. Technical and functional mechanisms ensure smooth exchange trading even in extreme market situations.
Slowdown Through the Volatility Interruption
The volatility interruption is one of the most important protective mechanisms in the trading system. Also known as "circuit breaker", it has been making a significant contribution to preventing abrupt, unintended price jumps for decades.
If the potentially next stock exchange price lies outside defined corridors (find a link to further documentation in the info box on the right-hand side), the price is not formed immediately but a volatility interruption is initiated and trading is interrupted for a certain time (duration varies according to trading procedure and market segment – in continuous trading e.g. 2 minutes). This has the advantage that orders are collected until the next price formation. Liquidity is bundled. The short break gives market participants (investors) more time to analyze the situation. If necessary, changes can be made to the orders (e.g. in price or quantity). Price fixing at the end of a volatility interruption is carried out – as in an auction – according to the most executable volume principle, i.e. the price is determined from the sum of buy and sell orders where, taking all orders into account, the largest turnover is possible.
In case of particularly large price jumps, trading can be interrupted by an "extended volatility interruption". Volatility interruptions can occur during continuous trading or even after the end of auctions (volatility interruption extends the auction).
Other protective mechanisms
From order entry, through the technical data lines to price formation on the stock exchange and also in post-trading – the stock exchange world has numerous protective measures in place. Pre-trade controls, such as validation of the maximum order volume, prevent orders with too large a volume from being entered in the order book. On the way to the stock exchange, technical throttling of the lines protects against overloading the trading system. The maximum number of orders per trading participant per second is limited. The volatility interruption prevents unwanted, rapid price jumps, as described above. The random end of auctions protects against market manipulation. The highest level of settlement security also exists in post-trading. In clearing, all participants deposit collateral to guarantee the execution of transactions. All these steps strengthen the confidence of trading participants in exchange prices.