kill switch

Market participants are trying to come to grips with technology glitches. These glitches have the potential to destabilize the markets. Electronic trading errors and how they can be prevented is being looked at again. Best practices and deployment are among the policies to ensure market participants have better systems.

These are the 5 biggest problems with the U.S. equity markets:
  1. It's extremely fragmented.
  2. High-frequency traders supply 40 to 60 percent of the volume traded.
  3. Mini-flash crashes are erupting in stocks on a daily basis.
  4. Algorithms are rushed to the market and may not be adequately tested.
  5. The SEC lacks a much-needed consolidated audit trail to police all trading activity.
So what can the financial industry do? Automated trading is here to stay. We can't stop progress.

A kill switch approach might be the most widely accepted approach to the problem. A kill switch at the exchange level that could halt trading if a broker-dealer exceeded a certain peak net volume threshold has been discussed among several working groups.

More oversight and testing has been needed to enforce a market-wide framework. Perhaps collaboration on algorithms isn't possible, but on a kill switch.... well, just maybe.
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