Nasdaq ISE plans to expand Kill Switch risk protection

Maria Nikolova

The Exchange proposes to expand the optional Kill Switch risk protection to allow cancellation and restriction of quotes, orders, or both.

Nasdaq ISE, LLC has filed with the Securities and Exchange Commission (SEC) a proposed rule change concerning the Kill Switch protection mechanism. In particular, the Exchange proposes to amend Options 3, Section 17, which sets forth the Exchange’s optional Kill Switch risk protection.

Nasdaq ISE proposes to expand the optional Kill Switch risk protection the Exchange offers to Members today to allow cancellation and restriction of quotes, orders, or both. This new functionality will be offered alongside the existing port Kill Switch, which currently allows Members to cancel and restrict only their orders.

The Exchange will provide the planned enhancement through a separate graphical user interface (GUI Kill Switch) as an alternative way for Members to manage their trading activity. The GUI Kill Switch will be functionally similar to the existing port Kill Switch, with the most notable difference being the added ability to cancel all existing quotes and block the entry of additional quotes.

For example, similar to the port Kill Switch, Members will be able to use the GUI Kill Switch for requested Identifier(s) to apply either on ISE only or across both ISE and GEMX, depending on how the Identifier(s) was set up by the Member. Accordingly, Options 3, Section 17 is set to be amended to reflect that the Exchange will offer the proposed GUI Kill Switch alongside the existing port Kill Switch.

Nasdaq ISE believes that the proposed enhancement to the Kill Switch will offer Members an alternative means to control their exposure, through a separate interface which is not dependent on the integrity of the member’s own systems, if the member experiences a failure.

The proposed GUI Kill Switch, similar to the existing port Kill Switch, is designed to protect Members in the event the Member encounters a situation, like a systems issue. The individual Member firm benefits of enhanced risk protections, including Kill Switch mechanisms, flow downstream to counter-parties both at the Exchange and at other options exchanges, thereby increasing systemic protections as well.

Furthermore, Nasdaq ISE will continue offer this optional risk tool to all Members, and, hence, the Exchange believes that it will encourage liquidity generally and remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest.

More information on the proposal and how to submit feedback can be found in the SEC’s notice.

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