Korea Exchange (KRX) will establish a "kill switch" system that allows it to cancel quotes that cause a system failure by its own authority and to halt trading immediately.
According to the financial investment industry on the 1st, the exchange has given notice of revisions to the detailed enforcement rules for the KOSPI, KOSDAQ and KONEX markets and is collecting opinions through the 18th. The revisions will take effect Jan. 12 next year.
If a system failure is feared due to a flood of quotes, the revisions allow the exchange to cancel the quotes by its own authority and, if necessary, halt transactions. Any unfilled balance will also be canceled in a batch if a failure occurs.
The existing kill switch operated only upon a securities firm's request, but with this revision the exchange can trigger it directly, greatly expanding the speed and scope of the response.
An exchange official said, "Both quotes that caused a system failure and those expected to cause one can be canceled by our own authority," adding, "If a quote that triggers a system failure occurs in the system, it can be handled immediately."
The existing kill switch system was introduced in 2016 to prevent erroneous trades. It was to prevent a recurrence of the accident in Dec. 2013 in which Hanmag Investment Securities went bankrupt due to a futures and options order error. At the time, when a securities firm applied, the exchange canceled all unfilled quotes in the account and blocked additional orders. This revision extends that kill switch to situations involving system failures.
A decisive turning point was the March 18 incident this year, when all KOSPI stocks were halted for seven minutes due to an execution error at DONG YANG STEEL PIPE. The exchange pledged measures to prevent a recurrence of system failures immediately after the incident.
However, if the exchange cancels quotes by its own authority or halts transactions, compensation standards for potential investor losses have not yet been prepared, so further discussion is expected. An exchange official said, "If there are investors who claim they suffered losses because they could not trade, it becomes a dispute situation, and internal discussion is needed on this matter."
Meanwhile, in this revision the exchange also added the reason "delay in receipt of foreign exchange settlement funds" to the notice of outstanding settlements to ease trading inconveniences for foreign investors. The revision supplements the reasons for outstanding settlements arising from settlement time differences.