US-based trading technology vendor Mantara has added an algo kill switch to its broker-dealer offering as oversight and monitoring of electronic trading tools is thrust back into the spotlight.
Mantara now offers brokers ExpressWay E-Brake, a hardware-based solution that allows firms to stop strategies immediately and minimising losses resulting from technology errors.
E-Brake sends kill messages directly into Arista or Cisco switches, allowing brokers to kill strategies manually or through automated means.
The manual kill switch can be triggered through a desktop application, terminating single, multiple or all strategies. The automated version allows users to set kill parameters for single, multiple or all strategies based on risk parameters including principal value, order frequency, order size, average daily volume, position size, P&L and duplicate order checks. Orders and positions can also be tracked and alert messages can be sent to halt trades at the order level, modify strategy behaviour or notify compliance officers that dangerous trading is occurring.
Mantara said its new tool was launched following the technology glitch that cost US market maker Knight Capital US$440 million, an example of failures it says are rapidly becoming commonplace. The Knight error led to multiple erroneous orders being sent to NYSE Euronext at the start of trading on 1 August and forced the firm to recapitalise.
A rogue algorithmic order was also blamed by regulators for causing the flash crash on 6 May 2010. During the crash, US$1 trillion was wiped from the value of the US stock market in the space of 20 minutes, before recovering just as quickly. Following the flash crash, US regulator the Securities and Exchange Commission passed a rule requiring brokers to install pre-trade risk checks before allowing clients to access markets directly.
Earlier this year, IPOs of trading venue operator BATS Global Markets and Facebook were also disrupted after exchange technology errors. BATS was forced to cancel its IPO – the first stock to be issued on its own listings service – while Nasdaq OMX plans to pay US$62 million worth of compensation to members that were unable to determine their positions following the debut of Facebook’s stock.