Mechanisms for Managing Volatility at the Budapest Stock Exchange

Pursuant to Section 316/A (6a) of Act CXX of 2001 on the Capital Market (Tpt.), the Budapest Stock Exchange (BSE) publishes its principles regarding the circumstances leading to the temporary suspension or restriction of trading, as well as the determination of the main parameters relating to such suspension or restriction.

Chapter 6 of Book 5 of the BSE General Terms of Service applies to the prevention and control of Irregular Trading Conditions. In order to ensure that the Exchange has effective systems, procedures and mechanisms in place for rejecting orders that exceed pre-determined volumes or price thresholds, or that are clearly erroneous, pre-trade automatic control mechanisms are provided in the Trading Systems for orders submitted to the public Order Book. In line with Section 316/A (6) of the Tpt. and Article 19 of Commission Delegated Regulation (EU) 2024/791 amending Delegated Regulation (EU) 2017/584, the Exchange ensures the operation of appropriate mechanisms that automatically suspend or restrict trading during trading hours in respect of transactions arising from orders submitted to the public order book.

The BSE operates both price collar and trading halt mechanisms on its cash and derivatives markets.

Cash Market

The role of the price collar is fulfilled by the “Price Reasonability Check” function.The “Price Reasonability Check” function of the Xetra-T7 Trading System warns the Exchange Member if the order price falls outside the Dynamic Price Corridor (Book 5, Section 7) and requires the Member’s confirmation before submission. The “Price Reasonability Check” compares the order price with the last traded price. In the case of a buy limit order, if the limit price is higher than the sum of the last traded price of the security and the value of the dynamic volatility band, the trading system sends a warning message. In the case of a sell limit order, if the limit price is lower than the difference between the last traded price of the security and the value of the dynamic volatility band, the trading system also sends a warning. Market orders and “No-Volume Quote Orders” in the continuous auction trading model are not checked in this regard. It remains within the discretion of the Exchange Member to decide, based on the system message received, whether to proceed with order submission; therefore, the “Price Reasonability Check” function does not prevent the submission of an order under its original parameters.

The trading halt mechanism is provided by the Volatility Interruption and Extended Volatility Interruption phases.

• Volatility Interruption: A trading phase applied to control and manage price movements, consisting of an order collection period and, where possible, price determination, for a maximum defined period. This always lasts 180 seconds plus a random 30-second period (continuous trading resumes at a random point within this 30-second interval).
• Extended Volatility Interruption: An extension of the Volatility Interruption if, during the order collection or extended order collection sub-phase, the Indicative Auction Price falls outside a multiple of the Dynamic Price Corridor defined by the Exchange.

Derivatives Market

On the derivatives market, the role of the price collar is fulfilled by the daily maximum price movement. For each Commodity and Derivative Product, this is the maximum one-way price change permissible during a single trading day compared to the current Reference Price, as specified in the Product List. In the Derivatives Section, this maximum movement corresponds to twice the initial margin defined by KELER CCP for futures products, while in the Commodities Section it corresponds to one-and-a-half times the initial margin for futures products. For futures products, the measure is automatically applied from the date specified by KELER CCP in case of determination or modification of the initial margin, without the need for an Exchange resolution or amendment of the Rules. For options products, the determination or modification of the measure is based on an Exchange resolution.

The trading halt mechanism is triggered when the Clearing Band is breached. The Clearing Band represents a deviation from the Clearing Reference Price established for each futures instrument, equal to the initial margin requirement set by KELER CCP. The magnitude of the Clearing Band for individual products is specified in the product specification.

Dynamic and Static Price Corridors on the Cash Market

• Dynamic Price Corridor: A range defined as a percentage deviation from the Dynamic Reference Price for each security. The Dynamic Reference Price is the last transaction price in the given security.
• Static Price Corridor: A range defined as a percentage deviation from the Static Reference Price for each security. The Static Reference Price is the last auction price of the day for the given security, or, in the absence thereof, the Base Price.

The exact operation of the dynamic and static price corridors is detailed in the BSE General Terms of Service; their values are reviewed and determined annually by the Exchange.

Static Corridors on the Derivatives Market

The derivatives market does not apply dynamic corridors in the traditional sense. To better fit the liquidity profile, the market operates with two types of static corridors:

The Clearing Band can be considered a static corridor in the sense that trading is suspended if a transaction would occur outside of it.

The maximum daily price movement is also interpreted as a static corridor.

Both the Clearing Band and the daily maximum movement use the previous day’s closing price as the reference price, which normally does not change during the trading day.

The dynamic element of the derivatives market lies in the ability of the Exchange, in agreement with KELER CCP, to adjust the reference price or the maximum price movement limit in response to specific market events, thereby influencing the extent of the relevant corridor.