ZBB 2020, 259
Circuit Breakers – a legal analysis of volatility safeguards in the rules of stock exchanges on the occasion of the COVID-19 crisis
This paper examines circuit breakers (CBs), i. e. emergency systems of trading venues that interrupt or restrain trading when significant price movements of financial instruments occur. After a description of the ratio legis and the economic fundamentals, the genesis and the different forms of CBs are presented. The European legal framework is then outlined. The relevant rules of the Frankfurt Stock Exchange (FWB) serve as an example.
Contents
- I. Introduction
- II. The ratio legis of CB rules
- III. Economic discussion
- 1. Law and Economics
- 2. The economic debate on CB regulation
- 2.1 Fundamental and transitory volatility
- 2.2 The link between volatility and a lack of liquidity
- 2.3 The impact of CBs on the bid-ask-spread
- 2.4 “Magnet effect”
- IV. Types of CBs
- 1. Overview
- 2. “Market-wide CB”
- 3. “Single-stock CB”
- 4. “Limit Up-Limit Down” (“price collars”)
- V. CBs under the framework of European financial regulation
- 1. Legal framework
- 1.1 MiFID II requirements
- 1.2 ESMA Guidelines
- 2. CB provisions in the exchange rules of Europe’s stock exchanges – using the example of the Frankfurt Stock Exchange
- VI. Conclusion and outlook
- *
- *)Ass. iur., PhD candidate at the chair for Public, European and Comparative Law (Professor Dr. Josef Ruthig) at the Johannes-Gutenberg-Universität Mainz
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