By Caroline Valetkevitch and Doris Frankel
NEW YORK/CHICAGO Aug 20 A flood of erroneous
trades hit U.S. equity options markets on Tuesday as they opened
for business when Goldman Sachs Group sent orders
accidentally because of a technical error, the latest trading
problem to hit the options market this year.
Major options exchanges including platforms run by CBOE
Holdings, Nasdaq OMX Group Inc and NYSE
Euronext said they were reviewing the trades, sent in
roughly the first quarter hour of trading and affecting options
on shares with listing symbols beginning with the letters H
Exchanges have the option to adjust prices or nullify, or
"bust," the trades if they are determined to have been made in
error. NYSE Euronext's NYSE Amex Options market said it
anticipates most of the trades will be canceled.
Goldman Sachs said in a statement the firm does not face
material loss or risk from the issue. The firm declined to
A person familiar with the problem, who declined to be
identified, said the cause was a computer glitch in which
indications of interest in equity options were sent as actual
orders to the exchanges. Some of the orders were filled, while
others were not.
Options market participants said the activity struck
promptly as the market opened.
Many of the orders on some of the options for those stocks
were 1,000-contract blocks traded for $1 per contract,
WhatsTrading.com options strategist Frederic Ruffy said.
Stocks whose options saw some of the order flow included
Johnson and Johnson, JPMorgan Chase and Co and
Kellogg Co., Ruffy said.
Options on some exchange-traded funds, such as the iShares
S&P Small Cap Fund, were also affected, he said.
Potential losses could range in the millions of dollars, the
source said, but it was unclear just how many transactions were
involved and what any final cost would be.
"There is no real obvious way to tell how much this cost
traders," said Ophir Gottlieb, managing director of options
analytics firm Livevol based in San Francisco. "But the ones
that are hurt the most are likely the market makers who provide
liquidity and are the counter parties."
It is another in a series of problems affecting exchanges.
In April, a half-day outage at the Chicago Board Options
Exchange exposed software problems that came about as it
prepared to extend trading hours for futures contracts on the
CBOE Volatility Index.
CME Group Executive Chairman Terry Duffy said in an
interview on CNBC that busting trades is difficult because of
different rules at different exchanges. The futures exchange
operator was not affected by Tuesday's incident.
Nasdaq and CBOE "have to coordinate with the NYSE and the
other institutions to make sure they all do the same thing
because if trades stand at one institution and not at another it
can be a big fallout for the participants and who gets those
trades," he said.
A year ago, a software mishap at Knight Capital Group
led to millions of unintended orders flooding into the
market over a 45-minute period.