All the major equity exchanges have a signal on their feed which indicates "all stop" to automated engines. It's a signal which automatic trading systems are re

All the major equity exchanges have a signal on their feed which indicates "all stop" to automated engines. It's a signal which automatic trading systems are required to listen to and on receipt suspend trading. Historically it's activated by the exchange if volatility has gone too high or if the market is behaving abnormally. It's one of the many safety systems the financial system has in place to protect against an algorithmic meltdown. Meltdown being the apt term, as the safety precautions aren't dissimilar to what you have in a nuclear system. You have multiple levels of checks-and-balances. For something to go seriously wrong 11-12 things have to break in combination. Obviously this isn't impossible and can (and probably will) happen sooner or later, but it in everyone's individual interest as well as the collective interest to prevent a collapse. The big problem isn't the risk that an investment firm will screw up and do bad deals (in practice bad share deals due to system error tend to be reversed by mutual agreement by the counterparties; banks know systems screw up and generally are willing to reverse such deals), but rather some new form of systematic risk is created which isn't properly protected against. Dealing with systematic risk is precisely where the regulators should be coming in because it's outside the capability of any individual institution to deal with it.