Direct Edge has built pre-trade risk controls, including automated and manual kill switches, into the software that matches orders on its EDGA and EDGX exchanges.
The kill switches and other controls are being provided at no cost to brokers that are members of its two exchanges, said head of sales Bryan Christian.
The controls, which come in response to the Securities and Exchange Commission’s rule 15c3-5, which requires all orders sent electronically to the nation’s exchanges to be filtered through risk checks by brokers, do not slow down the speed of achieving matches even by a microsecond, Christian said.
“There is definitely a demand for these kinds of pre-trade risk controls” from an exchange, he said.
Direct Edge’s free controls went into operation Nov. 30.
Those controls included user-set restrictions on the size or value of orders, as well as a member-controlled “kill switch.”
The tools will allow brokers to block or restrict the use of specific order types, such as short-sale orders; control the value or size of orders; limit the prices paid; restrict the stocks in which trading can take place; and create “aggregate” controls on the credit risk that will be allowed.