Trading on the Toronto Stock Exchange and other exchanges owned by TMX Group Ltd. came to an abrupt halt on Thursday afternoon, leaving traders and investors in limbo on one of the busiest trading days of the year.
Shortly before 2:00 p.m., TMX ordered a “technical halt” for the TSX, TSX-Venture Exchange and the Alpha Exchange, due to a “problem with order entry.” Derivatives trading on the Montreal Stock Exchange, which is owned by TMX, was also halted.
“Clients are currently unable to enter, modify or cancel open orders,” the exchange said in a statement, shortly after the halt.
A statement issued late Thursday night said all systems were ready for trading to resume on Friday. “The interruption was caused by a system capacity issue within the messaging technology component of TMX’s trading engine,” TMX said in the statement.
Thursday’s stoppage came at a dramatic moment, cutting short a day of intense selling that saw the S&P/TSX Composite Index drop 323 points or 1.9 per cent as concern mounts about the economic impact of coronavirus.
For professional traders, the halt caused disarray as orders remained unfilled and trading positions were left open.
“If you've got an order out there on the TMX, and you can't cancel it, we need to know how the system is going to be brought back to life. Is there a chance of a double fill, by selling too much or by buying too much? These are concerns that people need to be cognizant of," said Pete Gombocz, managing director of Velocity Trade Capital Ltd.
The TMX Group said in a statement that prior to re-opening the exchange, it will “provide sufficient time in a pre-open state for participants to manage their orders”
As Canada’s largest exchanges shut down, traders began routing their trades through smaller exchanges such as the NEO Exchange, and through alternative trading systems such as Omega and Chi-X. This took some of the pressure off the build-up of un-executed orders. However, far fewer shares trade hands on these smaller exchanges, making access to liquidity a challenge.
“The ability to enter and exit a trade is certainly hampered,” Mr. Gombocz said.
The early shutdown caused additional problems for people trying to manage margin calls, said Anthony George, head trader at INFOR Financial Group Inc. A margin call happens when people have borrowed money to buy stock, and the price of the stock declines, meaning they have to put more money into the trading account to make up for the shortfall.
“There’s capital issues people have. You’re up against margin. And without the access to sell, to liquidity, you’re breaking the rule,” Mr. George said, referring to rules around margin requirements.
“Margin calls come out at 2:15, and the market was halted at 1:54... You can go to those other exchanges and sell 100 shares or 200 shares, but you’re not getting the same liquidity,” he said.
Order processing problems used to be a relatively frequent occurrence on the TSX, said Mr. Gombocz, who worked for the exchange in the 1990s and early 2000s, although things have improved in recent years.
“I think the system and the technology today has been built to withstand a lot more [volume] than they would see on an everyday basis, so those spikes that you would see in trading volumes and order flow, I think those have been factored into how they built their processing,” Mr. Gombocz said.
“It is technology, technology does break, but they’ve had a good track record,” he added.
Mark Rendell