In December 2015, the Office of Analytics and Research of the SEC’s Division of Trading and Markets issued a research note discussing the extreme volatility that impacted the U.S. equities market, including the shares of many ETFs, on August 24, 2015. For part of that day, many ETFs traded at prices that differed significantly from their net asset values and/or the levels of their respective underlying indices. Some ETF investors were left wondering whether they had received fair prices for sales that they had completed. The events caused a number of issuers of structured notes to reevaluate the disclosures and risk factors used in connection with their ETF-linked products.
The staff’s full report may be found at the following link: https://www.sec.gov/marketstructure/research/equity_market_volatility.pdf.
The research note states that it could be used to help assess the operation of the stock market under stressed conditions. However, the note does not necessarily intend to specify the causes of the volatility and did not recommend any regulatory or other steps that may be taken in order to address similar events in the future.
The research note discusses the opening process at several U.S. primary exchanges, the triggering of trading pauses under the National Market System Plan to Address Extraordinary Market Volatility, and the effects of market volatility on trading in exchange-traded products such as ETFs.
The paper, written by SEC staff, looked at issues such as the lack of a uniform approach among exchanges to open trading, including after stocks have been temporarily halted, how trading pauses are triggered in volatile conditions, and how exchange-traded products, like ETFs, are affected by volatility.
According to the research note, the SEC’s staff continues to examine the trading issues on August 24th.