Securities Regulation Daily Industry groups, SROs to regulators: Keep markets open during COVID-19 outbreak
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Friday, March 20, 2020

Industry groups, SROs to regulators: Keep markets open during COVID-19 outbreak

By Amanda Maine, J.D.

Closing the markets would have a devastating impact on the economy, and even just shortening trading hours could end up increasing market volatility and driving investors to non-U.S. venues, the organizations cautioned.

A number of securities industry groups and self-regulatory organizations including SIFMA, ICI, ISDA, FIA, MFA, and Nasdaq sent a joint letter to regulators urging them to keep the financial markets open during the coronavirus outbreak. In the letter to Steven Mnuchin, Jerome Powell, Heath Tarbert, and Jay Clayton, the groups stressed the "devastating impact" that closing the markets would have on the economy and warned that even rumors about market closures are causing market participants to take steps they otherwise would not.

The letter also emphasized that essential personnel of member firms should have access to market, clearing, and settlement operations sites. Noting that several states and localities either have or are considering restricting the ability of personnel to access these sites, the organizations urged regulators to engage with state and local leaders to exempt essential personnel from any such restrictions.

Finally, the letter requested that the Financial Stability Oversight Council, on which the heads of the Treasury Department, SEC, Fed, and CFTC serve, signal that U.S. markets will continue to operate, as it will be essential to build market confidence and to emphasize the special role of markets during times of economic uncertainty.

CME Group also urged Secretary Mnuchin not to shorten trading hours, an idea that he had floated at a news conference on March 17. CME Group CEO Terry Duffy expressed surprise that Mnuchin had suggested the idea without reaching out to all cash equity and futures markets including CME Group and Nasdaq. According to Duffy, shorter trading hours in the U.S., rather than decreasing volatility, would actually increase volatility at a rapid pace as investors turn to other venues outside the U.S. when developments occur.

As an alternative to shortening trading hours on U.S. markets, CME suggested the following:

  • Circuit breakers in U.S. equity markets could be adjusted to include only 7 percent and 13 percent downside limits, rather than the current 7 percent, 13 percent, and 20 percent levels. This would help ensure that markets do not fall as far and as fast as they can today by halting trading sooner amid an escalating decline, according to CME.
  • Exchange-traded funds (ETFs) should be required to follow the same guidelines as other markets and to abide by these same circuit breaker rules. Since many ETFs are highly illiquid and are able to trade without being subject to the same standards as equity futures and cash markets, bringing ETFs in line with all other markets will reduce price gaps and soften market spikes at the beginning of each trading day, CME stated.

Markets must remain open, "especially during this unprecedented crisis when news, information, and events are changing at such a rapid pace," Duffy implored.

Companies: Futures Industry of America; Managed Funds Association; U.S. Chamber of Commerce; Securities Industry and Financial Markets Association; American Bankers Association; American Cotton Shippers Association; Bank Policy Institute; Cboe Global Markets, Inc.; CME Group; Commodity Markets Council; Financial Services Forum; Institute of International Finance; International Swaps and Derivatives Association; Investment Company Institute; Nasdaq; Alternative Investment Management Association; World Federation of Exchanges

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