In 45 minutes, Knight Capital unintentionally acquired a $3.5 billion net long position in 80 stocks and $3.15 billion net short position in 74 stocks. An algo, not able to ‘read’ the accumulated fills, kept sending orders to market. Knight’s proprietary trading systems were not tied into the firm’s overall credi thresholds.
The SEC Enforcement Order against Knight calls for Brokers to institute fully automated ‘lock downs’, prohibiting orders from entering the market if risk thresholds are reached.Called ‘kill switches’, are you aware of the conditions that could trigger a lock down and how it would affect yourorders and position?