Posted in Finance, Accounting and Economics Terms, Total Reads: 596
Definition: Fast Market Rule
This is one of the market specific rule, which applies to mainly London Stock Exchange. This rule permits market makers in United Kingdom to trade outside the ranges which ae quoted when the market movements fluctuate so rapidly that exchange is unable to keep the quotes current.
These scenarios though are highly rare and occurs during an emergency kind of situation or an uncommon event takes place. After this rare event, the sellers and buyers put the orders so rapidly that it becomes difficult to process and execute so many orders rapidly and keep pace with the incoming orders.
For example, during the terrorist attack on London city on July 7th, 2005, the London stock exchange had to declare the market as fast market. Due to such unforeseen circumstances, the market faced a steep decline. This rule helps to maintain order in the stock exchange during the time of total chaos. Generally, as soon as the London stock exchange declares the market of the day as fast market, the computerized trading systems (also called as black boxes) in the place are switched off which usually are responsible for the quotes. Hence during fast market rule in effect, the quotes are not determined by the black boxes. The highly volatile current market quotes are therefore dropped and trades are allowed to happen outside the quoted ranges.