Most of the trades caused when Goldman Sachs Group Inc. bombarded NYSE Amex Options with erroneous orders have been canceled, a person with direct knowledge of the matter said.
The decision by the exchange where most of the transactions occurred will limit losses at the fifth-biggest bank by assets after it roiled options markets three days ago. More than half of Goldman’s trades and a greater percentage of its volume from the first 13 minutes of the day will be voided by NYSE Amex, according to the person, who asked not to be named because the matter is private.
A programming error that spewed orders that pushed prices on dozens of contracts to a dollar each, according to a person briefed on the matter Aug. 20 and data compiled by Bloomberg. How exchanges would rule on trades that qualified as “clearly erroneous” orders was key to quantifying Goldman’s losses.
“Goldman clearly wanted as many of those trades busted as possible,” Mark S. Longo, a former market maker and chief executive officer of Options Insider Inc., said by phone today. “They were the ones who put the trades on at excruciating prices. The more cancellations they could get the better for Goldman.”
The malfunction affected securities with ticker symbols starting with the letters I, J and K. Of the 500 biggest options trades in the first 15 minutes markets were open on Aug. 20, 405 were for those tickers and priced at $1, according to data compiled by Trade Alert LLC and Bloomberg.
NYSE Amex Options accounted for 76 percent of those, compared with 18 percent for Nasdaq Options Market and 12 percent for the International Securities Exchange, data show.
NYSE Euronext’s options venue said less than two hours after the malfunction that, “as permitted by the rules, we anticipate that most of the impacted trades will be busted.” Goldman Sachs, which generated $5.8 billion in revenue from equities last year, said in an e-mail that any potential losses would be within the firm’s risk limits and not material to its finances.
Goldman Sachs shares fell 0.8 percent to $158.21 at 1:31 p.m. in New York after rising 1.5 percent yesterday.
The majority of the reviewed trades at the International Securities Exchange were adjusted and not canceled, based on the exchange’s rules, according to spokeswoman Molly McGregor. Bats Global Markets Inc. let the few hundred trades on that venue stand while Boston Options Exchanges adjusted trades.
Chicago Board Options Exchange, operated by CBOE Holdings Inc. (CBOE), said it reviewed the trades as obvious errors when a request for review was received within its time limit, which is 60 minutes.
Randy Williams, a Bats spokesman, Tony McCormick, chief executive officer of the Boston Options Exchange, Robert Madden of Nasdaq OMX Group Inc. and CBOE’s Gail Osten declined to comment for this story.
“It’s crazy when you look at how ISE does it one way, CBOE does it another way, Amex does it yet another way, that is absurd and it is demonstrably dangerous,” Longo said. “Let’s say you’re a market maker and you put up the same trade on three different exchanges, then you have three different processes you have to deal with to bust or adjust the exact same trade and you may have three different outcomes. How is that beneficial to anybody?”
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