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Steel Vine Investments CIO Spencer Patton on calls for a “kill switch” to prevent software glitches from causing major market issues.
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Switch after a number of trading debacles recently regulators seem convinced that the way to prevent minor mistakes for morphing into full blown fiasco is to have a kill switch.
This which would shut down trading before things get out of control -- companies are out of millions of dollars in losses.
How could tell -- -- actually hurts more than it helps with me now Spencer patent chief investment officer.
You'll -- investments ads are great to have you back.
Thank you I got Richard and yeah.
You -- because -- this makes a lot of logical sense to me but I know you don't agrees so what is it about a kill switch that you think is actually detrimental.
Yeah -- -- a picture for you if if them they exchanged notices some type of avenue morality going on and they exercise this kill switch and all trading ceases.
Imagine the panic that would spread across the other market the -- that don't have any problem that don't know what's going on.
You would see a level of panic that they don't know whether it's a terrorist attack whether it's some problem that they exchange whether they've lost their own feed.
I and then -- you saw the market reopened you would have such a lack of liquidity because everybody would be looking around saying what's going on that but this.
We -- the writing is like this right now you know whereas stock is limit upper limit down all of a -- -- and it stops trading because there's some irregularity and everybody sort of waits to see what the news is.
And then it reopens I mean we see stop stop trading so I don't know why this would be so different.
We have a defined amount that says that the stock is down 10% there's a circuit breaker and that's very transparent and people see that when it's down 10% this is what happens but what -- that the kill switch is talking about is that.
If the exchange notices some irregularity which that's not defined at all -- that's something that they see is that usual.
They can -- -- and so nobody else would know what's going on there it's it's kind of like the regulators addressing.
A tremor and somebody's arm by cutting off the armistice there addressing a symptom of a much larger part of problem.
By exercising -- kill switch and that's that's not the right resolution no.
Who's in charge of -- -- you know it's a great point -- and that's certainly appoint a concern I wonder though in the case of Knight capital I mean they they wrote a program.
That they implemented you know incorrectly.
It all the sudden led the company dry you know somebody got up from a computer went to go get it done it came back made trash the whole entire company.
That that seems like an exact situation where all of a sudden you would see this -- That be perfect situation where you want to kill switch to shut things down all of a sudden say wait a second what is.
Going over here.
Yes see here's the interesting counterpoint that though is that the -- Knight capital and that example didn't even realize they had a problem -- -- minutes until they realize try to identify where the problem was so at a company level I think it -- which is a great idea anybody that's trading should have some of the ability to -- applied but an exchange level if -- -- capital can't even identify and their own company how is an exchange going to be looking -- order flow and saying -- I see a problem here so we're gonna cut the whole market out.
And you know cease trading that but I.
I don't know -- -- massive influx of trading that came in from Knight capital at that moment the NYSE that they were trying to direct somewhere else but but that was the problem is -- sort of all went into one's art really quickly seems like that was something that could be identified shut down.
Yeah and so here we're getting to the real heart of the issue is that high frequency trading does exactly that they try to rush orders -- the market and do what's called quote stuffing where they send just hundreds of thousands of orders and small amounts of time.
In order to try to manipulate markets one direction or another and so the SEC -- so far behind they just don't see this happening they don't have anybody on staff.
That sophisticated and up to a -- -- that so.
That Russia borders doesn't necessarily show that there's a problem it just shows me somewhat ironic it is clear now yes and that's that's how you game that's is that -- then come to say how can I create some panic and how can I force the market to shut down because when -- reopens then I'll really be able to get some volatility.
And that's how high frequency traders make the money that's why they're not your space Spencer.
Hello get I I hope south embrace and be listening.
They are coming not appreciate your time thank you up --
