1.2 The paper on "Measures to Minimize Market Disruption" reported that after the market break of 1987, some market authorities argued that the lack of measures for coordination between cash and derivative markets accelerated the price declines in both markets, while others challenged any such causal relationship and argued instead that trading in the derivative markets actually stabilized relevant cash markets.

1.3 That paper examined the various regulatory measures implemented by certain Working Party members to minimize the effects of such market events, for example, circuit breakers (including shock absorbers) and price limits, and concluded that there was a need for open and timely communication between and among relevant market authorities during periods of market disruption. With respect to circuit breakers and price limits, some members were found to rely upon one or more of these measures while others did not consider any of these measures necessary. The paper concluded that:

the differences in approaches to circuit breakers and price limits demonstrate that, in establishing such measures, regulatory authorities and markets should take into consideration their unique market circumstances, mechanisms of trading, and legal and market customs and practices. However, with the rapid growth of derivative markets in recent years, and the concomitant arbitrage with cash markets, it is difficult in some cases to prevent market disruption through regulatory measures in only the cash or derivative market. Therefore, regulatory authorities should keep pursuing desirable, coordinated measures between the cash and the derivative markets to minimize the effects of potential market disruption based on recognition that cash and derivative markets are one market from an economic point of view.

1.4 Although regulators differ on the nature of the mutual influences between cash and derivative markets during periods of market disruption, all Working Party members agree as to the importance of information sharing as a means of facilitating regulatory decision-making during these periods. In this connection, the market disruption paper concluded that market authorities should make substantive efforts to enhance open and timely communication among themselves, both at the domestic and international levels, with a view to minimizing the adverse effects of market disruption.

1.5 The term "open and timely communication" was used to refer to the full range of mechanisms by which relevant market authorities may find it appropriate to communicate with each other during such market events, whether that communication takes the form of (i) formal or informal information exchanges, by report or upon request, or (ii) consultations on and/or coordination of policy measures or regulatory responses. No single mechanism for open and timely communication is endorsed by this paper.

1.6 Although this discussion paper identifies the range of views reflected among Working Party members on specific issues, matters on which Working Party members agree are identified and highlighted within the text and are also listed separately at the end of this Paper as "Points of Consensus on Mechanisms to Enhance Open and Timely Communication Between Market Authorities of Related Cash and Derivative Markets During Periods of Market Disruption."