Are less stringent quotation obligations allowed for liquidity providers in stressed market conditions?

In stressed market conditions, it is recognized that liquidity providers may face challenges that could hinder their ability to provide continuous liquidity at the usual standards. Allowing less stringent quotation obligations acknowledges the reality of the market environment, where extreme volatility or decreased market depth can impact trading dynamics.

When such conditions arise, traders and market participants understand that liquidity providers may not be able to maintain their usual spreads or quote sizes without taking on excessive risk. Therefore, regulatory frameworks often permit some flexibility in these obligations to ensure that liquidity providers can continue to function and offer some level of market participation, even if it means temporarily relaxing their quoting standards.

This approach helps maintain market stability and prevents a situation where liquidity providers completely withdraw from the market, which could further exacerbate volatility and diminish market liquidity. By allowing these adjustments, the trading ecosystem can remain more resilient during times of stress.