High-speed trading firms were previously resistant to regulation. But the trading debacles of 2012 have caused them to be more open to it.
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The close call on Knight Capital Group, Inc.’s existence shocked traders across rival firms. The industry’s growing web of complex trading software has traders calling for new controls to avoid catastrophe.
The shift in industry thinking came from the shock that a firm could suffer such debilitating losses so quickly. Fixing the issues that causes such glitches has become a call for self-preservation in the high-speed trading industry.
Proposed fixes include increasing safeguards for testing computer code and the adoption of kill switches. The switches would halt trading if preset limits were reached. The limits would be considered points of danger either to firms or to the markets.
Last week a dozen high-speed trading firms sent a letter requesting the setting of uniform standards that would restore confidence and reduce volatility associated with aberrant trading activity.
Since the web has grown so large, some are concerned that it may be too late to fix the systems.
Even before the trading debacles occurred, the SEC was concerned about technology controls at some of the nation’s largest exchanges. The regulatory body is now investigating other exchanges to see if they have cut corners on compliance, based on its findings at a New Jersey firm associated with trading mishaps in 2010 and 2011.