Goldman Sachs (NYSE:GS) Tuesday flooded the U.S. stock market with orders for stock options due to a programming error, which has agitated the markets and shaken investor confidence in electronic trading infrastructure.
An internal system used by the bank to be ready to meet the market demand for stock options generated incorrectly orders with inaccurate price limits and sent them to markets, said a person close to the situation. Size of loss depends on how many transactions were canceled, the source said.
According to Bloomberg, some of these orders have been canceled.
The incident took place one year after the Knight Capital Group computers generated wrong orders on the U.S. stock market.
Goldman Sachs error is fueling criticism of the electronic structure of the U.S. equity market. Four months ago, Chicago Board Options Exchange was closed for three hours and a half due to IT failures.
“This unfortunately was an error, and in the financial world an error can be a million-dollar error. You can use the computer, but there has to be that human touch as well to try and catch errors,” said Chip Hendon, a fund manager with Cincinnati-based Huntington Asset Management, a company that oversees $16 billion.
Stock market operators are working on sorting out the transactions and any loss will not affect the bank’s financial situation, according to David Wells, spokesman for Goldman Sachs.
At least three operators of options trading platforms are reviewing the transactions that occurred at the beginning of the meeting, and NYSE Amex Options announced that most transactions could be canceled.
NYSE Amex Options will not be able to finish all trade reviews before the end of the trading session and will give participants the opportunity to appeal decisions by Thursday 9.30 AM, New York time.
CBOE Holdings announced that it verifies transactions between 9.30-9.41 AM and will continue to eliminate erroneous operations until 7 PM New York time. Nasdaq OMX Group checks the trades in the range 9.30-9.47 AM. About 12 U.S. trading platforms compete for market orders options.
Of the 500 largest options transactions that occurred in the first 15 minutes of the market opening on Wednesday, 405 could be problematic.
About 400,000 contracts could have been affected for companies like JPMorgan Chase & Co., Johnson & Johnson and Kellogg, according to data for the 500 large transactions.
NASDAQ OMX PHLX checks a list of about 1,225 single contracts for 51 stocks.
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