Best Practices for 

Exchange Volatility 

Control Mechanisms 

September 2023
Best Practices for Exchange Volatility Control Mechanisms

TABLE OF CONTENTS

I. INTRODUCTION ................................................................................................. 3

II. OVERARCHING DESIGN OF VOLATILITY CONTROL MECHANISMS...... 4

III. VOLATILITY CONTROL MECHANISM TRIGGERS ........................................ 6

IV. VOLATILITY CONTROL MECHANISMS IN ACTION .................................... 7

i. PRICE BANDS ON ORDERS ......................................................................7

ii. DAILY PRICE LIMITS .................................................................................. 8

iii. MECHANISMS TO INTERRUPT CONTINUOUS TRADING................. 9

V. POST-TRADE REMEDIATION – EXCHANGE ERROR TRADE POLICIES..... 11

VI. CONCLUSION ....................................................................................................12

VII. APPENDIX A: LIST OF CONTRIBUTING DERIVATIVES EXCHANGES....13

VIII. APPENDIX B: EXAMPLES ................................................................................14

IX. APPENDIX C: EXCHANGE RULES (PROVIDED BY THE 

RELEVANT EXCHANGES) ................................................................................16

About FIA

FIA is the leading global trade organization for the futures, options and centrally cleared 

derivatives markets, with offices in Brussels, London, Singapore and Washington, D.C. 

FIA’s mission is to:

» support open, transparent and competitive markets,

» protect and enhance the integrity of the financial system, and

» promote high standards of professional conduct.

As the leading global trade association for the futures, options and centrally cleared 

derivatives markets, FIA represents all sectors of the industry, including clearing firms, 

exchanges, clearing houses, trading firms and commodities specialists from about 50 

countries, as well as technology vendors, law firms, and other industry service providers.

© FIA, SEPTEMBER 2023

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I. Introduction

A global pandemic, war, economic sanctions, political unrest, unanticipated policy 

decisions, financial fragility, and their associated news cycles have one thing in 

common: they can all cause extreme and sudden market volatility.1 Faced with this 

volatility and the importance of managing risk, market participants require robust, 

exchange-provided Volatility Control Mechanisms (“VCMs”) designed to ensure 

the market can process a volatility event without compromising market integrity, 

reliability, and utility. This paper considers VCMs as defined by CPMI-IOSCO in 

2018, which seek to minimize disruption caused by trigger events such as obvious 

erroneous orders, large aggressive orders and positive feedback loops triggered by 

large price movement (i.e., Flash Crash).2 This paper also considers VCMs designed 

to address high market volatility (i.e., stressed market conditions).

FIA has engaged with derivatives exchanges, market participants, and international 

regulators for over a decade on the development of best practices to mitigate 

market disruptions, including the use of VCMs. For these VCMs to be relevant 

across asset classes and remain effective, FIA believes they should be principlesbased rather than a prescriptive set of requirements which can become obsolete 

as markets and participants evolve. FIA has observed that the availability of 

exchange VCMs proved critical in preserving the integrity and reliability of markets 

during recent market crises. 

The objective of this paper is to offer best practices for the design of derivatives 

exchange VCMs.3 It was produced in consultation with exchanges leading in 

the development of market integrity controls and rulesets designed to mitigate 

market disruptions and maintain open and transparent price discovery on their 

marketplaces. It is not intended to provide an exhaustive or comprehensive list 

of VCMs. It will, however, cover a range of tools such as pre-trade limits on order 

prices, daily price limits, circuit breakers, and other ex-ante and ex-post controls, 

that interrupt markets for predetermined time intervals. It will also touch on other 

exchange rulesets that provide participants with remedial measures for prices 

resulting from error trade events. FIA acknowledges there are other exchange 

tools that assist in maintaining orderly markets, such as quantity limits, messaging 

programs and throttles, and kill switches, among others. While this paper solely 

addresses VCMs, and no other risk mitigation tools, FIA believes it is important for 

exchanges to have a combination of tools that monitor for these types of events 

and take appropriate action when needed.

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II. Overarching Design of Volatility Control Mechanisms

The objective of volatility controls is not to prevent volatility altogether; volatility 

typically does not weaken the integrity of markets, nor does it lessen investor 

protection. Volatility is a natural byproduct of price discovery and efficient 

markets, as new information is incorporated into prices. Volatility controls “should 

be designed to avoid market disruptions without unduly interfering with that 

market’s price discovery function”4 and “to preserve the efficient and orderly 

functioning of financial markets.”5

Volatility controls should be designed to mitigate the impact of extreme shortterm volatility driven by events such as operational errors or temporary supply 

and demand imbalances, but without impeding the ability of an instrument to 

reach a new equilibrium price level based on healthy market dynamics. In a 

volatility event, exchanges should focus on keeping markets trading, and trading 

interruptions should be used sparingly. 

Exchanges typically design and deploy several different, complementary controls 

working in tandem to ensure markets operate in an efficient and orderly manner 

across all trading hours. Because there are different triggering events that may 

impact volatility on electronic trading platforms (such as fat-finger order entry 

quantity and pricing errors, message frequency aberrations, and micro- and 

macro-economic events), there is no panacea. No single control can accomplish 

the goal of preserving orderly markets, and no one control is in all cases more 

effective than another.

In addition to designing VCMs to mitigate the impact of different types of 

triggering events, exchanges should regularly test and review these controls. This 

involves regularly assessing the efficacy of the controls, including a review of 

thresholds or parameters, the frequency of a control being triggered, and whether 

the controls meet their purpose, as well as incorporating feedback from market 

participants or other stakeholders. 

During stressed markets, exchanges may potentially amend the price band 

parameters which trigger a VCM, and they should regularly review and validate 

the criteria used to determine whether markets are stressed. Stressed market 

conditions are characterized by significant short-term changes in price and volume 

and can be caused by a variety of occurrences including economic releases. 

The conditions and criteria that must be met to determine whether a market is 

“stressed” should be transparent and readily available to market participants, 

enabling them to independently calculate and anticipate the triggering of these 

stressed market condition price controls.

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Information pertaining to VCMs should be made available to market participants in 

a transparent manner. Exchanges should publish information on how the controls 

operate and the thresholds that would result in the controls being triggered. 

These criteria should be publicly disclosed and replicable. Many exchanges have 

webpages dedicated to volatility controls that include detailed descriptions of 

the controls, technical specifications, explanatory videos, and frequently asked 

questions. Exchanges should also notify participants when a VCM is triggered. 

Best Practices on the Design of VCMs:

• VCMs should be designed to avoid unduly disrupting markets and interfering 

with price discovery

• Exchanges should focus on keeping markets trading and trading interruptions 

should only be triggered sparingly

• Multiple VCMs may be necessary to address different types of triggering 

events

• Design features of a VCM should be based on the specific characteristics of 

the market or the prevailing market environment, such as time of day effects

• Some VCMs or combination of VCMs may not be appropriate for all markets

• Information on VCMs, including parameters, thresholds and triggers 

applicable in normal and stressed markets, as well as how they operate in 

practice, should be publicly available and replicable

• Exchanges should regularly review their VCMs

• Any changes to VCM criteria should be promptly communicated to market 

participants

• Exchanges should notify the marketplace when a market-wide VCM is 

triggered

• VCMs should be active across all trading hours, but parameters may be 

adjusted for different trading sessions or hours

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III. Volatility Control Mechanism Triggers 

This section provides a brief overview of the factors that trigger or activate the 

VCMs most frequently implemented by exchanges globally. At a high level, all 

VCMs are triggered by price movement. In some instances, the VCM blocks the 

entry of an order and in others the VCM interrupts continuous trading of the 

market – but in all cases the triggering event is based on extreme price movement.

The most basic forms of VCMs are price bands on orders and daily price limits by 

product. These tools strive to ensure that markets work in an efficient, orderly, 

and predictable manner during volatile market conditions. Both tools block the 

entry of orders outside of a designated price range. Order-based price bands when 

used in isolation may not provide adequate protection against extreme volatility 

events. To provide additional protection, exchanges may utilize functionality to 

temporarily interrupt continuous trading upon the triggering of a pre-defined price 

movement. 

Exchanges utilize several different control mechanisms to interrupt continuous 

trading. This interruption may be facilitated by either introducing a temporary 

pause or by moving to an auction process. In both instances the interruption 

encourages greater participation by allowing participants an equivalent and 

adequate period of time to evaluate the market, digest new information, update 

prices on orders, and remove or add liquidity. When an interruption is introduced, 

it should be brief, but long enough to allow market participants sufficient time to 

react to new information and for the market to attract more liquidity. The optimal 

duration of the interruption is not necessarily the shortest interval possible, but 

rather the time needed to balance these considerations so when continuous 

trading resumes, prices and liquidity better reflect market conditions at the time. 

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IV. Volatility Control Mechanisms in Action

This section describes the various VCMs that exchanges generally use and 

provides details as to how these VCMs respond to the triggers previously 

mentioned. As noted above, not all VCMs may be appropriate for all markets or 

products and exchanges may use a variety of VCMs. 

i. Price Bands on Orders

The purpose of price bands or price collars on orders is to prevent erroneous 

orders, such as limit bids at prices well above the market or limit offers at prices 

well below the market, from entering the market and resulting in trades at 

aberrant prices. With price bands, each order submitted to an exchange’s trading 

platform is subject to a price validation control. Orders with prices outside of 

a pre-defined band, collar, or validation range will be held or rejected by the 

exchange.

Price bands can vary from product to product. They should be dynamic and 

regularly recalculated to allow price discovery to continue whenever possible. 

Price bands are generally based on the reference price plus or minus a fixed or 

variable increment, whichever is deemed to be suitable for the market and/or 

asset class. The size of the fixed increment, or the relative percentage of price 

range, should be reviewed regularly and calibrated based on historical intraday 

price statistics as well as current market conditions.

Price bands typically allow a wide range of prices to be traded above or below a 

particular product’s reference price. In certain situations, price bands may become 

stale (too narrow) and no longer reflective of the current market; this is more likely 

to happen in illiquid products such as options or in stressed market conditions. 

In this situation, some exchanges may modify the price bands to permit a wider 

band of prices to be traded using theoretical prices or another interpolated 

mechanism if no last trade price is available. While the width of price bands need 

not necessarily be symmetrical, if one side of a price band is adjusted then the 

other side of the band should be adjusted by an equivalent amount (i.e., a “sliding 

band”). Exchanges should conduct regular price band reviews to ensure they are 

recalculating bands with sufficient frequency.

When price bands are in use, they should be active across all trading hours. 

However, the size of the band may vary during different trading sessions.

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ii. Daily Price Limits

Daily price limits, where implemented, represent the maximum price range 

permitted for each contract during a prescribed time interval (i.e., daily or trading 

session). Both the daily price limits and the actions taken when limits are reached 

can vary from product to product. Some markets may have a hard daily price 

limit (i.e., prices cannot trade above or below the limit) and other markets may 

temporarily interrupt trading (short or long duration market pause) until the price 

limit can be expanded to a higher/lower interval. Not all contracts have daily price 

limits.

Generally, daily price limits are calibrated or determined by the exchange using 

historical price statistics (such as averages or quantiles) and the specifics of the 

contract. Daily price limits apply to up and down price movements, and may not 

necessarily be symmetric such that a limit down value can be different from a 

limit up value. Daily price limits should apply across all trading hours, including 

overnight trading, although the size of the limits applicable to different trading 

sessions may vary. 

To allow for continued price discovery in volatile markets, contracts with hard 

daily price limits may also have provisions for an “expanded daily limit.” An 

expanded limit goes into effect when one or more contract months settle at an 

upper or lower price limit. The expanded daily limit remains in effect until one 

or more of the contract months settle below a high limit or above a low limit, at 

which time the contract reverts to the original hard daily price limit. 

Best Practices on Price Bands:

• Price controls, or pre-trade order price validations, should be designed to 

prevent erroneous orders from entering the market

• Price bands should be dynamic and regularly recalculated to allow price 

discovery to continue whenever possible

• Exchanges should have the ability to modify price bands as market conditions 

warrant

• When price bands are used, they should be active across all trading hours, 

but the size of the band may vary during different trading sessions

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iii. Mechanisms to Interrupt Continuous Trading

Short duration market pauses are one of the VCMs used to prevent market prices 

from moving “too far, too fast” by placing limits on the amount a market can move 

within a preset time period. This control usually analyses price moves within a very 

short timeframe, typically no more than a few seconds. If the price move within 

this timeframe exceeds predefined parameters, such as the fixed price band value, 

the market is paused or held, again, typically for no more than a few seconds. 

Long duration market pauses (commonly referred to as circuit breakers or dynamic 

circuit breakers) are a VCM that provides another layer of protection from 

extreme volatility events. Except for the timing or duration component, circuit 

breakers function similarly to short duration market pauses. While circuit breaker 

functionality varies, they typically assess market moves over a longer time period 

(e.g., price moves over a rolling one-hour period or over the course of a trading 

session) and involve longer market pauses than short duration market pauses (e.g., 

a few minutes versus a few seconds). The price moves required to trigger a circuit 

breaker event are also usually wider than price moves for short duration market 

pauses (e.g., 5%+ of previous settlement price).

Short and long duration market pause triggering parameters are configurable by 

the exchange and can be tailored for each contract or group of contracts. These 

parameters should be transparent and readily accessible to market participants.

Best Practices on Daily Price Limits:

• Daily price limits may not be appropriate for all contracts

• Where daily price limits are used, they should be applied across all 

trading hours, although the size of the limits applicable to different 

trading sessions may vary

• Daily price limits should be designed to address the specific needs of 

a particular contract, taking into consideration the dynamics of the 

contract, the interconnectedness with other related contracts, and 

hedging needs of participants, among many factors

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When a short or long duration market pause is triggered, in addition to pausing 

the market, there are a variety of potential additional parameters that an exchange 

can set to determine more specifically how the pause functions. Some examples 

include:

a) apply a pause where no orders are allowed, 

b) apply trading constraints over a defined time period where orders and 

matching beyond a specific price level are restricted, or 

c) apply a pre-open state where orders are submitted or cancelled but no 

matching takes place. 

Interrupting continuous trading by transitioning to an auction state is another 

VCM an exchange can use if prices are outside a pre-defined range. During the 

call phase of the auction, orders can be submitted to the order book without 

order matching and an indicative price can be displayed. This decelerates trading 

allowing market participants sufficient time to react to new information and for 

the market to attract more liquidity.

Exchanges have different procedures for resuming continuous trading after the 

activation of an interruption mechanism. In instances where a market pause 

is implemented, markets transition to a pre-open state where the exchange 

rebuilds its order book by collecting orders from market participants in advance 

of resuming order matching at a specified time. In markets that have moved to 

an auction state, the call phase can establish a re-opening price based on a trade 

where buyers on the bid and sellers on the ask are matched. 

Regardless of the specific operating model, exchanges should give due 

consideration to the design of the trade resumption mechanism to foster robust 

price formation, enhance market transparency, and strengthen confidence. 

Although sometimes necessary, interruptions to continuous trading can interfere 

with the price discovery function. As such, an appropriate degree of care and 

deliberation should be applied to the design of the procedures for resumption of 

trading. Exchanges should incorporate features that facilitate greater participation 

and incentivize liquidity to boost confidence in price formation during periods 

of excessive volatility, such as providing indicative prices or order balance 

information which could attract the liquidity needed to re-establish a healthy 

market.

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V. Post-Trade Remediation – Exchange Error Trade Policies

In addition to pre-trade controls, exchanges typically also provide other forms 

of recourse to market participants where trades occur at erroneous price levels, 

including exchange error trade policies. Exchange rulebooks typically provide 

the exchange with the authority to review and adjust or cancel trades that are 

executed at clearly erroneous prices. 

Exchange rules will describe the exchange’s authority to adjust or cancel 

trades where, in its absolute and sole discretion, it believes a price adjustment 

or cancellation is necessary to mitigate market disrupting events caused by a 

participant’s error. These error trade policies should be designed to balance 

market participants’ need for trade certainty with the adverse effects of trades 

being executed at prices inconsistent with prevailing market conditions.

The ultimate goal of any error trade policy should be to promote a marketplace 

Best Practices for Mechanisms that Interrupt Continuous 

Trading:

• Controls should be highly configurable and designed based on the 

market characteristics of each contract or group of contracts to which 

they will be applied

• Controls should be designed in coordination with other market 

controls to ensure that they function properly in tandem

• The duration of the interruption should be configured in a way to 

avoid a potential market disrupting event without unduly interfering 

with price discovery

• The mechanisms utilized by exchanges to resume continuous trading 

should incorporate features designed to foster robust price formation, 

enhance market transparency, and strengthen investor confidence

• Information about the controls and the type of market interruption 

applied should be transparent and readily accessible to participants 

• When these controls apply, they should be active during all trading 

hours

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where all trades stand as executed. Where this is not possible, a price adjustment 

is the preferred action. Adjusting the price of an erroneous trade is typically less 

disruptive than a cancellation, as an adjustment only impacts the value of the 

erroneous trade, and not the overall position and any ensuing trading decisions 

made by the impacted market participants. However, it is recognized that there 

may be exceptional circumstances when erroneous trades have to be cancelled to 

retain market integrity.

VI. Conclusion 

To ensure the orderly functioning of markets, exchanges should adopt a principlesbased approach to the management of extreme market volatility, especially during 

periods of significant stress. By instituting multiple layers of pre-trade, including 

volatility, controls and continuously monitoring the criteria and their effectiveness, 

exchanges can strike the right balance between protecting the market from 

erroneous or disruptive activity and facilitating genuine price discovery for market 

participants who wish to manage their risk, even during times of broader market 

volatility. 

Best Practices for Exchange Error Trade and Price 

Adjustment Policies:

• Erroneous trading ranges and error trade rules and policies should be 

transparent and readily accessible to participants 

• The time period during which a trade is subject to review should be 

limited to preserve trade certainty

• Exchange policy should favor adjusting, rather than cancelling, 

potential error trades

• The trade review outcome should be consistent and predictable

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VII. Appendix A: List of Contributing Derivatives Exchanges 

Derivatives Exchange Name Derivatives Exchange Description

CFE

Cboe Futures Exchange offers futures 

contracts based on various indices, such as 

volatility, variance and corporate bond indices. 

The CFE is owned and operated by Cboe 

Global Markets, Inc.

CME

CME Group operates 4 derivatives exchanges; 

CME, CBOT, NYMEX and COMEX offering 

different types of derivatives contracts over a 

wide range of asset classes such as financials, 

energy or agricultural.

Eurex

Eurex deals primarily with European-based 

derivatives, offering interest rate derivatives, 

equity derivatives, dividend derivatives, 

foreign exchange derivatives, commodity 

derivatives, and property derivatives.

ICE

Intercontinental Exchange Group operates 

6 derivatives exchanges: ICE Futures US, 

ICE Futures Europe, ICE Futures Singapore, 

ICE Futures Abu Dhabi, ICE Endex and ICE 

NGX. These exchanges provide a wide range 

of derivatives contracts over several asset 

classes, primarily in energy, financials and 

agricultural.

LME

The LME Exchange operates a global metal 

market offering different types of derivatives 

contracts on industrial metals such as 

aluminium, copper, zinc and nickel. The LME 

Exchange is owned by Hong Kong Exchanges 

and Clearing Ltd.

Nasdaq

Nasdaq operates the Nasdaq Options Market 

(NOM), Nasdaq BX (BX Options), Nasdaq 

PHLX (PHLX) Options markets, Nasdaq ISE 

(ISE), Nasdaq GEMX (GEMX), Nasdaq MRX 

(MRX) as well as Nasdaq Nordic Derivatives 

Market

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VIII. Appendix B: Examples

a. Short Market Duration Pause

Below is an example of a CME short market duration pause called Velocity Logic event. 

On April 20, 2022, at 9:30 AM CT, there was a rally in June 2022 Crude Oil futures. The 

Velocity Logic6 in Crude Oil futures at this time was set to trigger upon a $0.50 move 

in one millisecond. An attempted trade of $102.32 exceeded those parameters, thus 

triggering a five-second pre-open period. The market re-opened at 9:30:05 am, at a price 

of $102.45, and trading then resumed.

b. Long Market Duration Pause

Below is an example from a CME Dynamic Circuit Breakers (DCB) event. 

On April 28, 2020, the prior day settlement in June 2020 Crude Oil futures was $12.80. 

The DCB parameters at that time were set at 15% of the prior day’s settlement, which 

made the DCB value for April 28 equal to $1.92. Thus, if an order would cause a market 

price to be $1.92 greater than the low price of the previous rolling one-hour window or 

$1.92 less than the high price of the previous rolling one-hour window, the market would 

be paused. At 10:05:26 AM CT, an order was entered that would have traded at $11.76. 

The high price over the previous one-hour period was $13.69. When the DCB value of 

$1.92 was applied to that high price, the lower bounds at which the DCB would trigger 

equaled any trade at price below $11.77 ($13.69 minus $1.92). This potential trade 

of $11.76 therefore triggered a DCB. Following the trigger of the DCB, a two-minute 

trading pause and pre-open period commenced. The market resumed trading at 10:07:26 

at a price of $11.82 and subsequently traded higher. 

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IX. Appendix C: Exchange Rules (provided by the relevant 

Exchanges)

VCMs Disclosures

CME

The CME Group Client Systems Wiki provides comprehensive information 

and documentation describing aspects of exchange systems that are relevant to market participants, including information about mechanisms used 

to address extraordinary market volatility.

See https://www.cmegroup.com/confluence/display/EPICSANDBOX/

Market+Integrity+Controls; https://www.cmegroup.com/education/demos-and-tutorials/understanding-velocity-logic.html; https://www.cmegroup.

com/education/articles-and-reports/understanding-price-limits-and-circuit-breakers.html;

CME also provides VCMs thresholds see, https://www.cmegroup.com/

globex/files/globex-product-reference-sheet.xls

Following the triggering of a volatility control mechanism, the CME Group 

exchanges communicate with market participants and the trading public 

using a market data feed. These public messages inform market participants that an instrument (or group of instruments) is subject to a volatility 

control measure or has transitioned out of the volatility control measure.

ICE

Each of the ICE Futures Exchanges consolidates their policy and FAQ 

documents regarding market controls and other information on their public 

website. The resources can be found at the below links:

ICE Endex: https://www.theice.com/endex/market-resources

ICE Futures Abu Dhabi : https://www.theice.com/futures-abu-dhabi/market-resources

ICE Futures Europe: https://www.theice.com/futures-europe/market-resources

ICE Futures Singapore: https://www.theice.com/futures-singapore/market-resources

ICE Futures U.S.: https://www.theice.com/futures-us/market-resources

ICE NGX : https://www.theice.com/ngx/resources

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CFE

Cboe Futures Exchange, LLC (“CFE”) describes its volatility control 

mechanisms and parameters in the CFE Rulebook. See https://cdn.cboe.

com/resources/regulation/rule_book/cfe-rule-book.pdf.

Eurex

VCMs are supported by Eurex in all futures markets and implemented via a 

volatility auction model. Once the trigger conditions are satisfied, continuous trading is interrupted by a volatility auction call phase lasting several 

minutes and concluded by a volatility auction price as a result of the orderbook uncrossing at the end of the auction call phase. Trigger conditions are 

based on price bands verified and updated on a daily base taking market 

prices of previous business days into account. More detailed information 

can be found on Eurex Webpage, Functional Reference § 7.5 (see https://

www.eurex.com/resource/blob/3470806/362c351541e687c629c5cdd4ce862fec/data/T7_Release_11.1_-_Functional_Reference_v.11.1.2.pdf )

Nasdaq 

(Nasdaq 

Nordic)

VCMs are supported in Nasdaq Nordic Equity Derivatives markets and 

would result, once triggered in a volatility auction as documented in Chapter 13 of the Market Model document available at:

https://www.nasdaq.com/market-regulation/nordics/derivatives-rules

For liquid index futures a sliding window method is applied during continuous trading while for less liquid index futures the model is based on static/

dynamic thresholds method.

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Price Bands

CME

Price bands on CME Group’s electronic trading platform, Globex, are dynamically calculated for each product based on the last price (“fair value”), 

plus or minus a fixed band value. The band values are publicly available on 

CME Group’s website.7 On CME Globex, the price bands for Light Sweet 

Crude Oil futures are currently set at $0.50. If the fair value of a particular 

Crude Oil futures contract is $80.00, bids above $80.50 and offers below 

$79.50 would be rejected by the trading platform.

ICE

Reasonability Limits

ICE Futures maintains Reasonability Limits (RL) to prevent ‘fat finger’ type 

errors. These are hard limits above or below an Exchange set anchor price. 

Orders with bids above the Reasonability Limit or offers below the Reasonability Limit will not be accepted. 

ICE Futures also determines parameters above or below an Exchange set 

anchor price for each Contract within which a trade alleged as an error 

trade may not be cancelled. Such parameters are known as a no cancellation range (NCR).

Product-level RL and NCR parameters for ICE Futures can be located at 

each of the Exchange Resource Centers, at the above-mentioned websites.

CFE

CFE Rule 513A (Risk Controls) describes the price reasonability checks 

that are in place for CFE products, and the product rule chapter in the CFE 

Rulebook for the applicable CFE product includes the default price reasonability check parameters for that product. See https://cdn.cboe.com/

resources/regulation/rule_book/cfe-rule-book.pdf. CFE also publishes a 

Risk Management Specification on its public website regarding how CFE 

clearing firms and trading privilege holders may set risk controls on CFE. 

See https://cdn.cboe.com/resources/membership/CBOE_FUTURES_EXCHANGE_RISK_MANAGEMENT_SPECIFICATION.pdf

Eurex 

Price bands and corresponding price band validations are supported for all 

Eurex markets. Basically, Eurex distinguish between “Price Reasonability 

Checks” and “Extended Price Range Validations. More details can be found 

in the Functional Reference, § 6 (see https://www.eurex.com/resource/

blob/3470806/362c351541e687c629c5cdd4ce862fec/data/T7_Release_11.1_-_Functional_Reference_v.11.1.2.pdf”) 

Nasdaq 

(Nasdaq 

Nordic)

Price band validations are applied on both futures, forwards and options 

based on a dynamic reference price which is updated based on a set of 

rules as described in the market model chapter 13:

https://www.nasdaq.com/market-regulation/nordics/derivatives-rules

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Price Limits

CME

Many of the CME Group agricultural products have hard daily price limits. 

The limits are revised twice per year and published to the marketplace 

through a CME Group Special Executive Report.8 In determining the limits, 

the exchange analyzes and averages historical price information (e.g., prices 

averaged over a 45-day period) and multiplies that average by a percentage 

(e.g., 7% for Corn futures). The percentages were established by evaluating 

historical daily percentage price changes by product to capture, on average, 

daily price movements 99% of the time. That newly calculated limit will 

apply until the limit is revised during the subsequent revision cycle.

The expanded limits are approximately 50% higher than daily limits. If 

the futures contract settles below a high limit or above a low limit, the 

following day the futures contract will revert to the original hard daily 

limit. Notably, on CME Group’s markets, hard daily limits do not apply to 

contracts during the delivery months, which helps ensure proper price 

convergence as the contract nears expiry.

CME’s U.S. equity futures contracts, for example, have a range of 

safeguards, some of which are coordinated with cash equity markets. 

During overnight hours, CME Group U.S. Equity futures have a 7% hard 

price limit. If the market prices reach that 7% limit, up or down, the market 

remains open but trades cannot take place outside of the price limit. CME 

Group also applies a dynamic circuit breaker to its U.S. equity futures 

contracts. During overnight hours, if the market moves beyond 3.5%, up or 

down, within an hour, trading is paused for two minutes. Dynamic circuit 

breakers are discussed in further detail below. During daytime trading 

hours, CME Group U.S. equity futures circuit breakers are coordinated with 

cash equity market circuit breakers at 7%, 13%, and 20%. If the 7% or 13% 

breakers are triggered, the markets are paused for 15 minutes; if the 20% 

breaker is triggered, the markets are closed for the trading day.

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ICE

Daily Price Limits

ICE Futures U.S. currently has Daily Price Limits (DPLs) on three futures 

contracts, Cotton No. 2®, FCOJ-A and Canola futures. The DPL represents 

the maximum price move from the previous settlement price permitted for 

each futures contract during a single trading session. While trading will not 

be halted in any product if a DPL is hit, the contract cannot trade above or 

below the limit. This may result in a market that is “locked” limit up/down, 

which cannot trade because bids/offers are outside of the applicable DPL. 

Each contract also has provisions for expanded daily price limits which are 

applied on days following a trading day where the market settled at the 

limit.

Detailed descriptions of the daily price limits can be found in the respective 

contract rule chapters:

Cotton Rule 10.09: 

https://www.ice.com/publicdocs/rulebooks/futures_us/10_Cotton.pdf

FCOJ Rule 13.08: 

https://www.ice.com/publicdocs/rulebooks/futures_us/13_FCOJ.pdf

Canola Rule12.02(c): https://www.ice.com/publicdocs/rulebooks/futures_

us/12_Canola_Rules.pdf

CFE

CFE describes any price limits in place for CFE products in the product rule 

chapter in the CFE Rulebook for the applicable product. See https://cdn.

cboe.com/resources/regulation/rule_book/cfe-rule-book.pdf. For example, 

CFE Rule 1202(i)(i) describes the price limits in place for Cboe Volatility Index (“VIX”) futures during extended trading hours. CFE price limit parameters are also posted on the CFE public website. See https://www.cboe.com/

us/futures/product_info/product_level_system_parameters/

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Best Practices for Exchange Volatility Control Mechanisms

Trading Interruptions – Short Market Pauses

CME

Velocity Logic has two iterations, Velocity Logic Narrow (“VLN”) and 

Velocity Logic Wide (“VLW”). VLN analyzes market movements within 

a rolling single millisecond—should markets move more than the range 

of the price bands within that time, Velocity Logic triggers a brief, fivesecond trading halt. VLW functions in the same manner, except that it 

analyzes a rolling one-second timeframe, and requires a price move of 

three times the price band range before triggering a five-second 

trading halt.

Importantly, on CME Globex, markets are not fully closed during trading 

halts triggered by Velocity Logic. Rather, the relevant market enters a “preopen” state, in which users can cancel resting orders and submit bids and 

offers, although trade matches will not occur. Throughout this five-second 

pre-open period, the exchange publishes a dynamically updated indicative 

opening price (“IOP”). In this manner, price discovery can continue even 

while the relevant market is in its pre-open state, and orderly trading can 

resume after a brief pause during which market participants can adjust 

their strategies to account for the market’s direction.

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Best Practices for Exchange Volatility Control Mechanisms

ICE

Interval Price Limits

Interval Price Limits act as a temporary circuit breaker feature on the 

electronic platform, to diminish the likelihood and extent of short-term 

price spikes or aberrant market moves. While it is designed to be in force 

throughout each trading day, it is expected that the protections will be 

actively triggered only in the case of extreme price moves over very short 

periods of time. The IPL regime uses three customizable parameters for 

each futures product: 

IPL Recalculation Time: A pre-set length of time during which the 

price of a contract month may not move up or down more than the 

IPL Amount (defined below) from the contract price at the start of 

the period. This starting price is referred to as the “anchor price”. 

The IPL Recalculation Time continuously resets for the length of 

time applicable to the particular futures contract. 

IPL Amount: The maximum number of points that a contract month 

is permitted to move up or down during each IPL Recalculation 

Time for the contract. The anchor price plus/minus the IPL amount 

effectively creates an IPL range for the contract for the IPL Recalculation Time. 

IPL Hold Period: When the platform determines that the next trade 

in the contract month will be at a price that is outside the active 

IPL range, the platform triggers a Hold Period, during which the 

price of the contract is not permitted to trade outside the IPL range 

that was in place at the start of the IPL Hold Period. The length of 

the Hold Period is pre-set. When a Hold Period is triggered, the 

platform will issue an alert notifying users that a Hold Period has 

begun and specifying the time the Hold Period will end. 

IPL parameters can be changed without prior notice, at the sole discretion 

of the Exchange, based on prevailing market conditions.

A detailed description of the Interval Price Limit Functionality can be found 

at the below address:

https://www.ice.com/dashboards/traders/securedocs/IPL_Circuit_Breaker.

pdf

Product level IPL parameters for ICE Futures can be located at each of the 

Exchange Resource Centers, at the above-mentioned websites.

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Best Practices for Exchange Volatility Control Mechanisms

CFE N/A

Trading Interruptions – Long Market Pauses and others

CME

CME Group, for example, deploys Dynamic Circuit Breakers (“DCB”). In 

Crude Oil futures, a DCB event is currently triggered by a price move of 

10% of the prior day’s settlement price in a one-hour period. If a DCB event 

is triggered, trading is halted for two minutes. As with Velocity Logic, during 

a DCB trading halt, the market enters a “pre-open” state in which bids and 

offers are permitted to be entered, but no trade matching occurs. Details 

about DCB can be found on the CME Group client systems wiki, here: 

https://www.cmegroup.com/confluence/display/EPICSANDBOX/Dynamic+Circuit+Breakers

CME Group also utilizes “market-wide” circuit breakers that are designed 

to provide an automated, coordinated pause in trading among related futures, options, and their underlying equities products. U.S. market-wide 

circuit breakers tied to price declines in the S&P 500 Index of 7%, 13%, or 

20% during a single trading day are in place for equity related products. For 

example, these market-wide circuit breakers were triggered on three separate occasions in March 2020 during the start of the COVID-19 pandemic. 

More information is available in the equity futures and options product 

chapters, as well as on the CME Group website, here: https://www.cmegroup.com/trading/equity-index/sp-500-price-limits-faq.html

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ICE

Trading Halts

For equity index futures, ICE Futures U.S. employs extended trading halts 

when the trading in the primary national securities markets have declared a 

trading halt due to extraordinary market volatility (NYSE Rule 7.12).

NYSE Rule 7.12 can be found at the below address:

https://nyseguide.srorules.com/rules/adabe2b07d5e100088ed005056881d2301

Rules regarding ICE Futures U.S. trading halts subsequent to primary securities markets halts can be found in the relevant rule chapters for the 

affected product, for example: 

https://www.ice.com/publicdocs/rulebooks/futures_us/23_MSCI_Index_

Futures.pdf

https://www.ice.com/publicdocs/rulebooks/futures_us/25_NYSE_Index_

Futures.pdf

CFE

CFE Rule 417A (Market-Wide Trading Halts Due to Extraordinary Volatility) describes CFE’s market-wide circuit breaker (“MWCB”) trading halt 

provisions, and the product rule chapter in the CFE Rulebook for each CFE 

product indicates whether and how that rule applies to that product. See 

https://cdn.cboe.com/resources/regulation/rule_book/cfe-rule-book.pdf. 

For example, CFE Rule 1202(i)(iii) indicates that VIX futures are subject to 

CFE’s MWCB trading halt provisions and how those provisions are applied 

to VIX futures.

Eurex

Eurex is supporting circuit breakers in all futures markets using a volatility 

interruption functionality to protect futures markets against large price 

movements. The time period applied for evaluating the trigger condition of 

a circuit breaker ranges from several seconds to extended periods.

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Best Practices for Exchange Volatility Control Mechanisms

Post Trade Remediation

CME

CME’s Rule 588 provides that the exchange, namely its Global Command 

Center (“GCC”), may determine to review a trade based on its independent 

analysis of market activity or upon request from a market participant who 

was a user of the exchange’s electronic trading platform. For a market participant to request that a trade be reviewed as a potential error trade, the 

participant is required to contact the GCC via telephone within eight minutes after the execution of the trade at issue and advise that he/she wishes 

to invoke the error trade policy. When a trade is subject to review pursuant 

to Rule 588, the exchange promptly issues an alert to the marketplace indicating that the subject trade is under review.

The GCC’s guiding principle in making its determinations is to let transactions stand wherever possible, even if at an adjusted price, rather than cancelling them. The reason for this principle is that market participants may 

already have taken further action in reliance on the potential error trade, 

for example via hedging. Predictability is a key facet of market integrity that 

can be undermined by cancelling trades, which the GCC’s principles-based 

approach to potential error trades seeks to protect.

In reviewing a trade under Rule 588, the GCC first considers whether the 

trade price is within the Non-Reviewable Range9, which ordinarily mirrors 

the price bands in place for that specific contract. In applying the Non-Reviewable Range, the GCC determines the fair value market price for that 

contract at the time the trade occurred, as well as any other pertinent 

information, including but not limited to: (1) the last trade price in the contract; 2) a better bid or offer price on the electronic trading system; (3) a 

more recent price in a different contract month; (4) the price of the same 

or related contract established in another venue or another market; (5) the 

market conditions at the time of the trade; (6) the theoretical value of an 

option based on the most recent implied volatility; and (7) responses to a 

Request for Quote. If the GCC determines that the trade price was inside 

the Non-Reviewable Range, the trade stands. If the GCC determines that 

the trade price was outside the Non-Reviewable Range, the trade price is 

adjusted to a price that equals the fair value market price for that contract 

at the time the trade occurred, plus or minus the Non-Reviewable Range. 

Rule 588 also contains a provision for liability for losses. It provides that a 

market participant who enters an order that results in a price adjustment or 

cancellation shall be responsible for demonstrated claims of realized losses 

incurred by participants whose trade prices were adjusted or cancelled. 

A loss claim must be submitted to the Exchange on an Exchange claim 

form within five business days of the event giving rise to the claim. Eligible 

claims shall be forwarded by the Exchange to the party responsible for the 

order(s) that resulted in a trade cancellation or a price adjustment and to 

the clearing member through which the trade was placed. The Exchange 

may reject any claim that is not filed within five business days, and any such 

decision is final. To the extent liability is denied, the claimant may file a 

claim to arbitrate against the responsible party, pursuant to exchange Rule 

622 (Claims Relating to Trade Cancellations or Price Adjustments).

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Best Practices for Exchange Volatility Control Mechanisms

ICE

Error Trade Policy

In order to ensure fair and orderly market conditions, ICE Futures may 

cancel any order and may cancel any Trade executed in Exchange Trading 

System pursuant to the Error Trade Policy. In normal circumstances, the 

Exchange will only adjust prices or cancel trades on the basis that the price 

traded is not representative of market value. 

Additionally, there is a defined No Cancellation Range for each Contract, 

and trades executed within this price range will not, under normal circumstances, be cancelled or price adjusted. A component of market integrity is 

the assurance that once executed, except in exceptional circumstances, a 

trade will stand and not be subject to cancellation or price adjustment. Any 

trades that do not have an adverse effect on the market should not be able 

to be cancelled or price adjusted, even if executed in error.

The Exchange will make the final decision on whether a trade price is adjusted, or a trade is cancelled or is allowed to stand.

ICE Futures error trade policy can be located at each of the Exchange Resource Centers, at the above-mentioned websites.

CFE

CFE’s error trade policy is described in Policy and Procedure III of the Policies and Procedures Section of the CFE Rulebook. See https://cdn.cboe.

com/resources/regulation/rule_book/CFEPoliciesandProcedures.pdf.

Nasdaq 

(Nasdaq 

Nordic)

The exchange rules for cancellations and price adjustments of erroneous 

transactions are described in section 4.5 of the Exchange Rules of Nasdaq 

Derivatives Markets available at:

https://www.nasdaq.com/market-regulation/nordics/derivatives-rules

Eurex

Eurex mistrade rules are defined in Eurex Trading Conditions §2.9. See

https://www.eurex.com/resource/blob/311224/50a652c7d4e7c562196ebd5543260b3f/data/trading_conditions_en_2023_07_31.pdf

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Best Practices for Exchange Volatility Control Mechanisms

Endnotes

1 The COVID pandemic of 2020, the Ukraine invasion and the subsequent energy crisis of 2022 

shook global markets with sudden and extreme volatility setting new historical highs.

2 CPMI-IOSCO, Mechanisms Used By Trading Venues To Manage Extreme Volatility And Preserve 

Orderly Trading (2018)

3 Which would apply to, under MiFID II classification, Regulated Market (RM), Multilateral Trading 

Facility (MTF) and Organised Trading Facility (OTF)

4 17 C.F.R. Appendix B to Part 38. 

5 MiFID

6 CME short duration market pause or Velocity Logic analyzes market movements within a rolling 

single millisecond, should markets move more than the range of the price bands within that time, 

Velocity Logic triggers a brief, five-second trading halt. 

7 See https://www.cmegroup.com/globex/files/globex-product-reference-sheet.xls

8 E.g., https://www.cmegroup.com/content/dam/cmegroup/notices/ser/2022/10/SER-9081.pdf

9 See http://www.cmegroup.com/rulebook/files/588h-globex-non-reviewable-trading-ranges.xls.

© FIA, SEPTEMBER 2023

27
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