Market management and regulation: the case of trading halts.

Summary Most of the world's stock markets have adopted trading halts, which are regulatory measures designed to protect small holders, reduce volatility and prevent stock market crashes. On the Paris stock exchange, there are two main types of listing orders: suspensions pending the publication of information, and listing reservations triggered by a price variation above a predefined threshold. These procedures are frequently used, especially for reservations on the B continuum. The study of the impact of quote reservations on the microstructure of the market shows that they do not allow a rapid decrease in volatility. On the other hand, they seem to be at the origin of a transfer of the exchange and a persistence of volatility at high levels after the recovery. The results also show a possible anticipation of the interruption by the market, which is reflected in an increase in volatility, trading volume, information asymmetry and a decrease in liquidity for about two hours before the interruption. The absence of quotations during disruption periods creates a loss of information that can bias the results of empirical studies that use unadjusted data. By means of simulations, adjustment procedures are tested in several scenarios. The results show that, in the majority of cases studied, replacing the missing price with the crossed threshold significantly reduces the bias. The application of the extreme value theory to daily price variations allows us to associate a reservation probability to a set of theoretical reservation thresholds. The results obtained can constitute a basis for reflection on the optimization of the regulation of quotation reservations. In particular, they make it possible to assess the consequences of tightening or widening the current thresholds.