SEOUL, May 27 (Korea Bizwire) – South Korea’s main bourse on Friday said it will introduce a “kill switch” and other safety measures in its program trading platform next month to prevent investors from suffering losses from trading errors.
A kill switch, also known as an emergency stop or e-stop, is a safety mechanism designed to help identify mistakenly placed orders and avoid liabilities due to such technical errors.
“If the kill switch system is introduced, the Korea Exchange (KRX) can cancel mistakenly placed and untraded orders at the request of investors and block the same additional orders to avoid investors’ losses,” a KRX official said.
In July 2013, the local derivatives market adopted the kill switch mechanism. Later that year, Hanmag Securities went bankrupt after being hit by irrecoverable losses from mistakenly placed and traded orders in futures options products, the KRX said.
“As the daily stock price change limit was revised up to 30 percent from 15 percent in June last year, an error in program trading could result in heavier losses for investors than before,” he said.
The ratio of program trading in the stock markets climbed to 8.7 percent in 2015 from 4.7 percent in 2012, the KRX said.
Program trading is a type of trading in securities, usually consisting of baskets of 15 stocks or more that are executed by a computer program simultaneously based on predetermined conditions.