VCM stands for Volatility Control Mechanism. It is a term used in financial markets to refer to a regulatory tool or mechanism implemented by stock exchanges or regulators to control excessive price volatility in the trading of stocks, futures contracts, or other financial instruments.
The VCM is designed to prevent sudden and drastic price movements in the market that may occur due to panic selling, high-frequency trading, or other disruptive factors. It aims to ensure fair and orderly trading conditions, maintain market integrity, and protect investors from extreme price fluctuations.
When triggered, the VCM temporarily halts trading or imposes certain restrictions on trading activities for a specific security or market segment. The duration and criteria for activating the VCM are predetermined and defined by the regulatory authorities or the stock exchange. These criteria often involve pre-determined percentage thresholds for price movements within a certain time frame.
During the VCM period, traders and investors are provided with time to assess market conditions, adjust their strategies, and reevaluate their trading decisions. Once the VCM period ends, normal trading resumes.
VCM is considered an essential tool for maintaining market stability and preventing excessive volatility that can be detrimental to market participants. By implementing the VCM, exchanges and regulators aim to strike a balance between facilitating efficient trading and ensuring market stability and investor protection.
