Goldman Sachs hurt by computer glitch

A trading glitch occurred yesterday in Goldman Sachs computer system that resulted in a large number of erroneous single stock and options trades. Many of the trades may wind up being erased but the error could still cost the firm around $100 million, according to a person familiar with the situation.

“The exchanges are working to resolve the issue,” a Goldman spokesman said in a statement. “Neither the risk nor the potential loss is material to the financial condition of the firm.”

A trading system that normally tracks how Goldman would price options on behalf of its clients malfunctioned and sent expressions of interest as orders to exchanges operated by NYSE Euronext, Nasdaq OMX and CBOE in the opening minutes of the US trading day, a person familiar with the bank’s trading said.

A person familiar with the situation cited by CNBC said the losses for Goldman could be in the millions, or even upwards of $100 million, depending on how many trades were problematic.
The botched trades occurred when Goldmans internal computer system that helps to determine where to price options mistakenly ended up sending orders at errant prices. Goldman is a market maker in the options market.

Information over what would happen with the trades is not expected until at least Wednesday, as NYSE said it was unable to complete its trade reviews during market hours and would give participants until Wednesday morning to appeal against any decisions.

The glitch is the latest technology issue to attract debates of the fragmented and interconnected US market, where securities change hands at speeds of milliseconds across a multitude of trading venues. It also highlights increasing controversy over what happens to faulty trades generated by computer problems.

The incident happened at 9.30am EST and lasted for about 17 minutes, as a large number of trades outside the normal price range flooded US options markets. “They got lucky there were no Googles, Amazons or Apples in that series,” said for Financial Times Mark Longo, a former trader who runs Options Insider, an industry website. Mishaps in those heavily traded options could have been very disruptive, he said.

Goldman Sachs advanced 0.6% yesterday while being up 25% year to date.