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October 17, 2012

Reuters: Kill switches may be too difficult to implement despite new call by CFTC member, expert says


“CFTC Commissioner Bart Chilton has called for high frequency traders, or “cheetahs” to face so-called kill switches that would shut down a broker dealer’s trading over erroneous orders or technology glitches. But a trading expert said the measure may be too difficult to implement in practice.

The problem with kill switches lies with the timing of the decision to turn off electronic trading, said Bernard Donefer, a professor of Trading Technology and Risk management in financial markets at Baruch College and NYU Stern School of Business. 

Despite kill-switches being installed at the New York Stock Exchange at the time of Knight Capital’s trading loss, market makers failed to pull the trigger on the firm’s trading, he said.

Senior executives should be held responsible for violations committed by their firms to restore the faith of investors in the markets, said Dennis Kelleher, president of the nonprofit financial-reform advocate Better Markets. He said regulators needed to impose stronger regulations against high frequency traders to prevent a meltdown in the markets.”

Read Emmanuel Olaoye’s full article here

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