Fast Market Rule
What Is the Fast Market Rule?
The fast market rule is a rule in the United Kingdom that permits market makers to trade outside quoted ranges when an exchange confirms that market developments are sharp to such an extent that quotes can't be kept current.
The purpose of the fast market rule is to keep an orderly market during a period of chaos. Under the rule, market creators must mood killer their electronic trading systems (called black boxes). They don't need to quote share prices in light of the London Stock Exchange's screen prices while the fast market is in effect, however they are as yet required to make firm quotes.
Understanding the Fast Market Rule
The fast market rule is utilized in the United Kingdom, principally in the London Stock Exchange (LSE), when a fast market happens. A fast market is a market that trades at a heavy volume and becomes turbulent, particularly in terms of falling prices. Fast markets are rare and are set off by exceptionally unusual conditions. For instance, the London Stock Exchange declared a fast market on July 7, 2005, after the city encountered a fear based oppressor attack. Share prices were falling decisively and trading was outstandingly heavy.
Regularly, shares must be traded inside a certain reach — quoted as the highest price a buyer will pay and the most minimal price a seller will acknowledge. Since it is essentially difficult to keep up with these reaches during a fast market, the fast market rule permits trades to occur outside those quoted ranges. This keeps the market from coming to a standstill since traders stall out or confounded. In this way, to work with the fast market rule, traders switch off their black boxes while the rule is in effect.
The fast market rule was made to keep the market trading when it turned into a fast market. Beforehand the main option during a fast market was to sanction a circuit breaker, which sets off an automatic halt on trading when the market falls too rapidly.
Fast Market Rule versus Circuit Breaker
The fast market rule was made to supplant the circuit breaker. From certain perspectives, the circuit breaker was hurting the market by halting trading. A circuit breaker is a mechanism that permits an exchange to briefly halt trading when prices decline strongly to forestall panic selling. Since halting the market forestalls all exchange activity, it is better to keep trading while at the same time giving a way to traders to be unrestricted so they can trade openly without ending up being confounded or incapacitated. The fast market rule permits that to occur by constraining traders to trade without electronic assistance and permitting them to trade outside the quoted range.
Features
- At the point when the fast market rule is instituted, market creators must mood killer their mechanized trading systems (called black boxes).
- The fast market rule is utilized in the United Kingdom, principally in the London Stock Exchange (LSE), when a fast market happens. (A fast market is a market that trades at a heavy volume and becomes turbulent, particularly in terms of falling prices.)
- The fast market rule is a rule in the United Kingdom that permits market creators to trade outside quoted ranges when an exchange establishes that market developments are sharp to the point that quotes can't be kept current.
- Market producers don't need to quote share prices in view of the London Stock Exchange's screen prices while the fast market is in effect, yet they are as yet required to make firm quotes.
