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Wednesday, 20 January 2016

Kill Switch

The kill switch is a requirement for a modern automated trading environment.  The term is pretty generic and can include capabilities such as:

  • Cancel all orders at a specific venue
  • Cancel all quotes at a specific venue
  • Cancel all orders at all venues
  • Cancel all quotes at all venues
  • Cancel all orders at a specific venue for a specific client
  • Cancel all orders at all venues for a specific client
  • Cancel all orders at a specific venue for a specific trading book
  • Cancel all orders at all venues for a specific trading book
  • Cancel all orders for a specific trading algorithm
A substantial part of the requirement is for certainty of functionality, that the user who activates the kill switch has a high degree of certainty that the kill switch will operate "as advertised" and perform the function properly. No one wants to hit a kill switch and find out later that a misbehaving algorithm has burnt up millions of £$¥€...
Within a sell-side firm with connections to multiple markets the implementation of a kill switch can become challenging. Each execution venue may use different protocols (FIX 4.2, FIX 4.4, FIX 5.0 SP2, ITCH/OUCH, proprietary) and each venue may or may not have the ability to mass cancel orders or quotes.
One very cute implementation of this is a combination of packet capture, switches and FPGA.  In essence, the IP connections to execution venues are routed through a packet capture implementation which then decodes the TCP/IP, evaluates the current state of the orders/quotes that have been sent and persists this state.  If and when a user executes the kill switch the FPGA in the switch at the edge of the network then sends the messages to the execution venues to kill quotes and/or orders.

This requires a high degree of knowledge of the peculiarities of the market - will it accept mass quote cancels and other ways to get out of the market quickly.  Or would it be quicker to simply execute a "cancel on disconnect" functionality and drop the TCP/IP session?

This sort of control mechanism is one that is seldom considered as glamorous, since it only comes in to use to mitigate a failure.  But money spent on a kill switch is viewed in a very different light either after then first failure that could not be mitigated since there was no kill switch or after a failure is mitigated by an implemented kill switch.

In other words, a kill switch is like a car airbag.  Not something you think about, until you need it.  And when you need it, you really need it and need it to work properly

1 comment:

  1. It is rather sad that FIX did not add kill switch into its protocol. Your list above should just be a valid values list for such a message.