Market outages: IOSCO good practices and key findings from global survey

United Kingdom

On 5 June 2024, the International Organization of Securities Commissions (IOSCO) published its Final Report on Market Outages, setting out good practices for trading venues and market participants in the event that a trading venue experiences technical problems or operational issues.

The Final Report includes a survey of the global legislative and regulatory framework for market outages, as well as the results of IOSCO’s survey of recent market outages from 2018 to 2022. IOSCO found that, out of its members surveyed, which includes the UK Financial Conduct Authority (FCA) and US Securities and Exchange Commission (SEC), there were 42 market outages on listing trading venues between 2018 and 2022. There were 16 market outages in 2018 alone, a figure which has decreased each year since, with only three market outages reported in 2022. This might suggest that increasing regulatory expectations and scrutiny with regards to operational resilience and outsourcing to third parties is having an impact on market resilience. 

IOSCO’s work has led to the development of five good practices, which cover: (i) the need for trading venues to establish and publish an outage plan; (ii) communication plans for notifying and updating market participants on an outage; (iii) the protocols around communicating and effecting the re-opening of trading; (iv) processes and procedures to operate a closing auction and/or to establish alternative closing prices; and (v) the need to conduct a post-outage plan, enabling lessons to be learned.  

The good practices do not constitute IOSCO standards, or formal recommendations to its members (including the FCA). Nonetheless, IOSCO encourages trading venues to consider adopting the good practices, where these are not inconsistent with existing regulatory requirements.

In the UK, as part of the Wholesale Markets Review, the FCA has already confirmed that it will publish guidance (or encourage the industry to develop guidance) on market outages, but had been waiting for IOSCO to publish its report. In 2023, the FCA established an industry-led sub-committee of its Secondary Markets Advisory Committee (known as S-MAC), to develop industry guidance for trading venues and other market participants, which is due to report its findings later in 2024. Now that the Final Report has been published, UK trading venues and market participants can expect this to filter down into specific UK industry or regulatory guidance in due course.

The focus of the Final Report is on equities listing venues, but IOSCO considers that its findings are equally relevant for non-listing and derivatives trading venues. Key findings from IOSCO’s survey include:

  • The fact that most jurisdictions do not impose specific obligations on market participants to connect to alternative trading venues in the event of a market outage. Larger market participants are often connected to multiple trading venues, but respondents to IOSCO’s survey indicated that this is not always the case. Some jurisdictions may only have one listing trading venue for a particular asset in any case.
  • Continuity of trading during a market outage is also generally part of a market participant’s operational resilience arrangements. Firms in the UK are already in the process of implementing the regulators’ standards in this respect. It remains to be seen whether the UK will adopt specific guidance for market participants in this respect.
  • In jurisdictions with a consolidated tape in equities, there appeared to be more significant migration to alternative trading venues in the event the primary listing venue suffers an outage. Some survey respondents indicated that this could indicate that a consolidated tape might assist with market resiliency, by providing a trusted source of pricing, which enables continuity of trading. In the context of the UK and EU’s current efforts to develop consolidated tapes, and the current debate between trading venues and market participants as to whether or not the equities consolidated tapes should include pre-trade data, this may be an influential finding.

The Final Report is part of the increasing focus from regulators on operational resilience, both at a macro, market-wide resiliency level, and at a firm specific level.

Our leading financial services regulatory practice continues to support clients on interpreting and applying the operational resilience regimes in practice. Together with our EU-based colleagues, we are able to offer a pan-European view on market practice and interpretation.

If you have any questions on any of the topics mentioned, please contact us.