Exchanges must have circuit breakers

[Dimsum]

If any of you were watching the Mt Gox live TV interview yesterday, you will know that Mark was asked this question - If they were implementing an AUTOMATED system to prevent the market crashing. Mark said that they are implementing something, but if there is a sharp rise or fall it would alert him via text message then he can evaluate the situation and freeze if necessary.

To me that is just very poor - since there is still some human intervention and therefore delay, there is always a chance that something will slip through while the damage is being done.

Overall I found their interview to not answer any real meat and substance based on what Mt Gox suffered.

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[mike_something]

I think if someone want to crash the market with his own money, he has the right to do so.

Possibly true, but it's less likely anyone would want to do this with their own money.  So if there is a trade like this it's more likely to be a problem than a genuine trade.

[BTC Economist]

I think if someone want to crash the market with his own money, he has the right to do so.

We do not need circuit breaker, we only need MtGox to have a system to figure things.

And also a system to ask confirmations for bizarre transactions, to avoid stuff like happened on Japan (one company intended to sell 1 share for 660k yen, and instead sold 660k shares for 1 yen, crashing the market and blaming the crap exchange interface... that resulted in a 40 billion USD loss by the way)

He would still be able to crash it if he wanted to.  There would just be a pause after the market started to fall, exchange would verify the account was not hacked and was the actual user, then resume the crash. 

[indicasteve]

I found this old snippet of how LL handles their circuit breakers on their exchange...

LindeX Exchange ‘Circuit Breakers’

In addition, effective immediately, we are establishing “circuit breaker” trading halts based on movement (positive
or negative) of the average exchange rate in any given day, as follows:

>10 percent in any 12-hour period: projected 1 hour halt

>20 percent in any 12-hour period: projected 2 hour halt

>30 percent in any 12-hour period: projected close until noon the following day

[ascent]

>10 percent in any 12-hour period: projected 1 hour halt

>20 percent in any 12-hour period: projected 2 hour halt

>30 percent in any 12-hour period: projected close until noon the following day

The bitcoin market, due to its immaturity, will inherently be volatile. If there were circuit breakers in place, in would have to be far in excess of 10 percent. Perhaps something along the lines of 20 percent in a 5 minute period, or 50 percent in a 30 minute period.

More importantly, if such circuit breakers were implemented, they must be publicly stated in the exchange's rules, and participants can evaluate the rules in place by the various exchanges in making a decision on which exchange to use.