Nasdaq Cancels Some Trades

Errors led to price swings prior to the opening on Thursday.

Nasdaq Stock Market canceled some trades in nine U.S. stocks, such as Goldman Sachs Group Inc., Hewlett-Packard Co. and Sprint Nextel Corp., that occurred more than 10 percent away from yesterday’s close.

The errors took place in the minute before the regular opening of trading, the Nasdaq OMX Group Inc. unit said on its website. Goldman Sachs fell as much as 20 percent to $94.01 and Hewlett-Packard plunged 79 percent to $3.06 before the trades were broken. Sprint touched $2.82, a 50 percent decline, prior to the Nasdaq’s decision to reverse those transactions.

“When I first saw they were canceling trades, my first reaction was: here we go again,” Larry Peruzzi, senior equity trader at Cabrera Capital Markets LLC in Boston, wrote in an e-mail. “I would not be happy if these erroneous trades triggered a stop-loss order if I had one on the books. My concern here is the frequency these errors are happening.”

Concern about mistakes in electronic trading has grown this year after a software error on Aug. 1 caused Knight Capital Group Inc. to lose $457 million, almost bankrupting one of the largest U.S. market makers. Nasdaq accidentally halted the start of trading in Whitehorse Finance Inc. last week and flubbed Facebook Inc.’s initial public offering in May when its auction to set the first traded price for the shares failed.

Wayne Lee, a spokesman for Nasdaq OMX, declined to comment beyond the status updates on the company’s website. Shares of the New York-based company slipped 0.3 percent to $24.23 as of 12:23 p.m. in New York.

The trades were canceled under Nasdaq’s “clearly erroneous transaction” rule, which covers prints that are “substantially inconsistent with the market price at the time of execution,” according to its statement.

For Goldman Sachs, there were 12 trades totaling 1,200 shares at $94.01 as well as one trade for 100 shares at $94.31 and a 100-share trade at $97.36, according to data compiled by Bloomberg. All occurred in the second before the 9:30 a.m. open of exchanges in New York and were broken. Trades occurring during the same second as low as $109.87, 7 percent below yesterday’s close, were not canceled.

 

‘Big Deal’

Transactions in Citigroup Inc. at or below $33.77, Hewlett-Packard from $13.07, AT&T Inc. from $31.04, Western Union Co. from $11.90, Wells Fargo & Co. from $30.15, Kroger Co. from $23.93, Goldman Sachs from $106.28 and Sprint from $5.09 and in Ventas Inc. at or above $71.58, were voided, the Nasdaq OMX unit said on its website.

“When something like this happens, it can be a big deal for traders in that if they were on the other side of these trades and traded out of those positions, they would be exposed to risk they had not foreseen,” Mark Turner, head of U.S. sales trading at New York-based Instinet Inc., wrote in an e-mail. “In these challenging times, consistency in regulation and governance is paramount.”

The start of trading in Whitehorse’s IPO was delayed last week after Nasdaq OMX mistakenly halted the collection of orders prior to the open, a person familiar with the situation said. The error came after a Nasdaq OMX employee, intending to push back the start time of quoting in the company’s stock, inadvertently halted it, according to the person.

The U.S. Securities and Exchange Commission is reviewing Nasdaq’s plan to pay brokers $62 million for losses related to the Facebook IPO in May. The exchange’s so-called opening cross, which sets the first traded price for Facebook, failed to operate properly on May 18. The failure to disseminate confirmations about orders submitted into that opening cross for more than two hours led to investor and brokerage confusion about transactions and prevented them from taking actions to reduce their risks.

 

Bloomberg News

 

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