SEC ROUNDTABLE: Kill Switches and Best Practices Are Coming
Traders Magazine Online News, October 2, 2012
The implementation of so-called "kill switches" and a uniform best practices guide to electronic trading stand as the two high points of the Securities and Exchange Commission's Market Technology Roundtable held on Tuesday.
That's the opinion of two execs who attended the roundtable. Jeff Bell and Chad Cook, chief executive officer and chief technology officer, respectively, at Lime Brokerage, told Traders Magazine advanced talks surrounding the implementation of kill switches are under way.
The two panel discussions covered a plethora of topics, ranging from instituting so-called "kill switches" to the exchanges' views on technology testing and how to possibly regulate the heady pace of technology deployment. Still, it was the ability to shut down trading that garnered the most attention.
"The need for kill switches and their implementation, as well as the need for some sort of standardized implementation of best practices were the takeaways today," Bell said.
"Kill switches" refer to a device or technology that would allow a market participant to shut down trading due to a technical glitch, such as a malfunctioning algorithm. Many in the industry believe such a technology or failsafe switch could have prevented market events, such as the recent Knight Capital debacle.
While there was no time frame for instituting or activating the market failsafe kill switch under discussion, Bell added that all panelists, including representatives from the exchanges, regard such technology as a priority.
"When kill switches were discussed, there was a definite sense of urgency in the air and lots of interest and talk of the exchanges and industry coming together to work on this," Bell said. However, no one elaborated on the money, manpower or technology necessary to put such a failsafe mechanism in place, he added.
Cook added that kill switches need to be at multiple trading locations with clear communications between them in order to be effective.
"Overall, there's still a lot of work to be done on all fronts," Cook said, referring to both kill switches and a best practices guide.
Despite the hurdles in implementing such technology, kill switches are coming, Bell said.
"Today the SEC got a green light to go ahead and adopt the kill switch concept," Bell said. "There was a general consensus that this is the best mechanism to protect the market."
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