MFA has supported certain standardized market measures and believes they have been extremely effective in limiting market disruptions and reducing investor confusion in times of extreme market volatility. Such measures include the use of market-wide circuit breakers, price collars (i.e., the Limit Up-Limit Down mechanism), and uniform exchange rules on clearly erroneous executions. In addition, MFA has supported the Market Access rule4 and believes it has been effective in reducing risks faced by broker-dealers, their customers including institutional and retail investors, and the markets more generally. However, we believe additional steps can be taken to bolster risk management practices.
The Commission or the Financial Industry and Regulatory Authority (“FINRA”) should provide more specific guidance on pre-trade risk controls to increase transparency to investors, encourage greater uniformity of controls among broker-dealers, and reduce concerns with respect to discrepancies in latency.
Standardized Kill Switches
The Commission should direct the Exchanges to work together to develop a standardized mandatory kill switch protocol, methodology, and rules. Standardizing a kill switch protocol will simplify implementation and use by exchange
See full Recommendation from the Managed Funds Association Equity Market Structure Policy Recommendations September 30, 2014