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Nasdaq aims for kill switch to go live in weeks

Nasdaq is planning a “kill switch” to cut off trades when they exceed established position limits. The exchange has already filed a proposal for the switch with the Securities and Exchange Commission and is hoping to launch by March 1.

The switch will allow trading firms to set limits on the sizes of positions they can afford to take. The firms will receive email warnings as trades approach their preset limits. If the limit is exceeded, the kill switch will kick in and automatically cancel open orders in the system. To reauthorize trading after a kill switch has been triggered, the member firm will need to contact Nasdaq and explain why the switch was triggered and why it is safe to resume trading.

Kill switches are intended to limit potential damage to exchanges, companies and investors that result from trading flaws.

The issue came to the forefront after the August 2012 Knight Trading incident, when the company lost $440 million due to a flaw that sent a large number of errant orders to the New York Stock Exchange. Nasdaq has had its own technical malfunctions, most notably a problem with the Securities Information Processor data feed in August which forced the firm to halt trading for three hours.

These and other industry disruptions prompted the chair of the SEC to call a meeting with heads of U.S. exchanges on how to strengthen the markets. Implementing kill switches emerged as a priority for the industry as a result of this meeting.

Intercontinental Exchange’s NYSE is planning a kill switch as well, while BATS Global Markets already has one.

For more:
– read the Wall Street Journal article
– read the Reuters article
February 20, 2014 | By 
Read more: Nasdaq aims for kill switch to go live in weeks – FierceFinanceIT
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