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ICE’s supervision of markets and price controls

Systems and controls are important in reducing the likelihood of orders entered in error, preventing the execution of trades at unrepresentative prices, and reducing the market impact of such trades. ICE has implemented dynamic and configurable price controls which change depending on prevailing market conditions. They help ensure that markets are well functioning and limit the likelihood of erroneous trades.

If the market is moving too quickly by a certain amount in price terms within a certain duration, these controls will pause the market, allow the supply and demand dynamics to be reset, and allow the market to continue.

These controls enable ICE to manage periods of increased price volatility, and to ensure that new information and rapidly changing events can be expressed in the market in an orderly manner.

The purpose of the market is to provide an open and transparent risk transfer mechanism, allowing prices to be discovered through the free interaction of demand and supply. Our view at ICE is that the market operator should only intervene to the extent that it is necessary to address any aspect which has distorted or undermined the price discovery process.

During periods of heightened volatility, it is critical that the price controls we operate work optimally, continue to allow the free interaction of supply and demand, and maintain orderly markets. This involves proactively re-assessing - and where necessary recalibrating - our controls to reflect the change in market conditions which are feeding into the price discovery process.

Risk transfer mechanisms, such as a futures market, are most needed during periods of heightened uncertainty and volatility where risks in the underlying commodity and financial markets are most acute.

The price controls which ICE operates include:

  • No Cancellation Ranges are soft limits whereby a trade executed within the specified range, in normal circumstances, will not be adjusted or cancelled by the Exchange.
  • Reasonability Limits are price parameters which prevent the entry or orders (and therefore matching of trades) outside of these pre-determined limits. These are hard limits that all orders are validated against on entry with buy orders above and sell orders below rejected by the Exchange.
  • 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 mechanism facilitates an opportunity for additional countervailing orders to be submitted to the market which might offset some or all of the increased buying or selling pressure and allow the market to discover the price in an incremental and orderly manner. We issue automated alerts to notify traders when IPLs have been triggered.

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