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Aug 21, 2013

Goldman Sachs trading glitch again spotlights electronic trading

SEC looking into programming errors that spurred mistaken stock options trades

The SEC is looking into a trading glitch at Goldman Sachs that inflicted a still-unknown amount of damage on the firm, bringing the vulnerability of electronic trading systems back into the spotlight.

The programming error, which came about during a system upgrade, prompted a series of stock option trades at wildly distorted prices, according to reports from Reuters and Bloomberg, both citing unidentified sources.

The scale of the damage won’t be clear until further investigation, but Reuters reported that it could be between a few million and a few hundred million dollars.

NYSE Euronext says in a statement that the glitch affected a ‘large number of trades’ in the first 17 minutes of the trading day. All of the transactions involved tickers that started with the letters H through L.

Bloomberg reports that more than 80 percent of the 500 biggest option trades in the first 15 minutes of trading had tickers starting with H through L.

Reuters and Bloomberg report that the SEC is looking into the issue to determine whether any rules were violated. The error comes as the SEC is looking to tighten its control over electronic trading and prevent high-frequency trading errors and other glitches that can seriously disrupt trading. 

The SEC announced its focus on high-frequency trading after the flash crash of 2010 that sent the Dow Jones Industrial Average briefly plummeting 9 percent. Mary Jo White, who took over as SEC chairman early this year, has vowed to renew scrutiny. 

The Goldman Sachs trading glitch also comes a week after a computer error in China sent trading volumes surging by more than 50 percent and prompted the Shanghai Composite Index to swing from a loss of 1 percent to a gain of almost 6 percent in minutes.

Everbright, a state-run brokerage in China, says the swings were caused by errors in its order execution system. The brokerage says it suffered losses of about $32 mn.