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​Price Monitoring Mechanism to Safeguard Against Extreme Volatility 

This  mechanism is designed to safeguard the market against excessive price movements in individual securities caused by error or unusual activity during the course of trading . The system surveys anticipated price movements of each security during each stage of trading for transactions pending execution. If before transition  to the Opening Phase or the Closing Auction Phase, an anticipated price change is flagged as unusual, a three-four minute trading halt is triggered. If an anticipated price change is flagged as unusual during the Continuous Phase, a five-six minute trading halt is triggered,   During these trading halts, investors can cancel and/or revise their orders. At the end of the trading halt, an auction is held, after which regular trading is resumed.
 
The purpose of this mechanism is not to prevent the execution of transactions, but rather to place orders that can potentially result in unusually high price fluctuations on hold in order to enable investors to moderate their orders  prior to execution.
 
If the mechanism is triggered for a security on which options are written, trading of the option is discontinued for during the trading halt in the underlying asset (except for cases in which the safeguard mechanism is triggered during the Opening Auction).

Static and Dynamic References

Unusual price fluctuations are checked against both static and dynamic references:

  • Static Reference - the anticipated price fluctuation relative to the price set in the last multilateral auction held for that security. If no multilateral auction was yet conducted (e.g. during the pre-opening phase) for that security, the static reference is measured against the base price on that day.
  • Dynamic Reference - the anticipated price fluctuation relative to the price set for that security in the last transaction.

Activation of the Volatility Safeguard in the Various Trading Phases

Pre-opening Trading Phase

Immediately prior to the Opening Auction, the system examines the last theoretical price for each security. Should the anticipated fluctuation exceed the static reference set for that security, the volatility safeguard is activated, i.e., the Opening Auction is postponed for 3-4 minutes. At the end of this postponement, the last theoretical price is re-examined. If the anticipated fluctuation continues to exceed the static reference, a second 3-4 minute postponement is imposed. After two such postponements, the Opening Auction is held regardless of whether the last theoretical price fluctuation falls within or exceeds the static reference.
  • If a fluctuation exceeding the static reference for a security not included in the TA-35 index is detected, the safeguard mechanism is activated solely for that security.
  • If one of TA-35 Index constituents fluctuates more than the static reference, the safeguard mechanism will not be activated. Instead, a postponement of 3-4 minutes in the Opening Auction for all shares is imposed. This exception applies solely to TA-35 index constituents and solely to the activation of the safeguard mechanism during the Opening Auction. Notwithstanding, a TA-35 index constituent with 0% weight, will not operate The "Price Monitoring Mechanism".
  • It is possible to cancel orders at any time during the Pre-opening stage.

Continuous Trading Phase

During the Continuous Trading stage, the system monitors each anticipated transaction for each security. Should an anticipated price fluctuation exceed either the static or dynamic references set for that security, the safeguard mechanism is activated. The execution of the transaction is placed on hold for five-six minutes, and after that time an auction (following the Opening Auction format),  in which investors may submit new or revised orders, is held.
  •  If the anticipated fluctuation calculated immediately after activation of the safeguard mechanism continues to exceed the permitted fluctuation, the safeguard mechanism is not reactivated for that security.
  • If a submitted order is anticipated to result in more than one transaction, some of which can be executed within the boundaries of the static and dynamic references, those transactions are executed, while those exceeding the boundaries are not immediately executed and the safeguard mechanism is activated for those transactions.
  • For limit (LMT) orders: the portion of the order not executed is registered in the order book.
  • For market (MKT) and "immediate or cancel" (IOC) orders: the portion of the order not executed is deleted and not be registered in the order book. The safeguard mechanism is not activated.
  • For "fill or kill" (FOK) orders: the entire order is deleted from the order book. The safeguard mechanism is not activated.
  • Trading in stock options (on the derivatives market) is discontinued for the duration of time the safeguard mechanism is active for transactions in the underlying share.
 

Closing Auction Phase

  • Upon completion of the pre-closing stage, the last theoretical price is calculated for each security. The safeguard mechanism is activated in cases in which the anticipated fluctuation exceeds either the static or dynamic references, resulting in a postponement of the Closing Auction for that security for a period of 3-4 minutes. 
  • At the end of one postponement, the security's last theoretical price is re-examined. If the anticipated fluctuation continues to exceed either the static or dynamic references, the Closing Auction is postponed for an additional 3-4 minute period. After two postponements, the Closing Auction is held regardless of whether the last theoretical price fluctuation falls within or exceeds either the static or dynamic references. 
  • If the safeguard mechanism is activated during the Closing Auction, the end of trading is postponed for no longer than 8 minutes. Accordingly, trading will end no later than 17:33 (5:33 PM) on Monday through Thursday and 16:33 (4:33 PM) on Sunday, Israel time.
  • Stock options trading (on the derivatives market) is discontinued during the time the safeguard mechanism is activated for transactions in the underlying share.

Summary of Price Tolerance Levels

Market
 
Securities Group
 
Static Volatility
Dynamic Volatility
Equities
TA-35
7%
4%
TA-90
8%
4%
Shares not included in the Tamar Universe
9%
5%
Small cap shares*
12%
10%
Convertible bonds
10%
5%
 ETNs
7%
4%
Debt
Government bonds
2.5%
1%
Corporate bonds
8%
3%
Debt-linked ETNs
4%
2%
T-bills
 
0.5%
0.1%
 
 *shares not included in the TASE Index Universe

For securities bearing a price of only a few agorot (agora = NIS 0.01), the calculation of static and dynamic references is problematic. For example, if a security whose price is 2 agarot increases to 2.2 agarot, the fluctuation is 10%. For these securities, therefore, the safeguard mechanism is activated only if and when the fluctuation is greater or equal to five times the minimum tick set for orders submitted for that security, even when this exceeds the tolerance level indicated in the table.

 

Cases in Which the Safeguard Mechanism Is Not Activated

​The safeguard mechanism shall not be activated in the following cases:
  • the first day of trading of a newly-listed security;
  • the first day of trading of a security for which trading was renewed after a trading suspension of 3 months or more;
  • trading of warrants, call options  and rights;
  • trading of securities listed on the "maintenance" and "illiquid securities" lists;
  • during auction trading following a trading halt;
  • during auction trading following activation of a market -wide  circuit breaker; 
  • on the trading day following the day a market-wide circuit breaker was activated and trading was not renewed on that day.