Goldman Sachs May Be In Hot Water Again : This Time for $100 million Over Faulty Electronic Options Trading Instructions

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Reversing the Trades Could Cost Goldman $100 Million… or More… So Far No-one is Saying Officially Exactly What Went Wrong…

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CEO Lloyd C. Blankfein

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/ By Stanley Green /

According to market analysts, New York investment bank Goldman Sachs may stand to lose as much as $100 million after a series of erroneous trades sent global money markets into a temporary state of turmoil for much of Tuesday.

Chaos ruled across global money markets for several hours yesterday, and only as the dust later began to settle fingers of accusation began to be pointed at Goldman Sachs as the possible cause. It seems that Goldman may be the trading firm behind a series of what were, apparently, supposed to have been large numbers of electronic options trading “expressions of interest” that were instead erroneously released into the ether as “firm” trades, causing huge amounts of subsequent confusion.

It appears that leading options market exchanges, New York Stock Exchange (NYSE) Euronext, Chicago Board of Exchange (CBOE) and Nasdaq OMX who were involved in what later transpired to be such erroneous trades, are now deep into a process of reviewing the transactions with a view to reversing and canceling them.

If it turns out that Goldman Sachs has to accept these cancellations, figures being bandied suggest Goldman might be liable to absorb losses of up to $100 million, though no-one is certain and no-one is yet talking on the record.

The confusion in the financial markets began to bubble over as soon as the money markest opened for business in New York yesterday morning, with an unusually large number of trades being made outside of normal price brackets, emanating initially largely from the NYSE Euronext but then also spreading out to their main competitors within a matter of minutes.

The first sign that something might be amiss came when NYSE released a “red alert” stating that they would be reviewing all transactions for the opening 17 minutes of yesterday’s trading on its Amex exchange, concerning all trades beginning with the letters “H” to “L”, and especially those linked to equities such as JPMorgan Chase and Kellogg.

Almost simultaneously, CBOE and Nasdaq OMX, announced that they would temporarily decline to accept quotes from NYSE Amex, with both companies later announcing that they too would be reviewing all transactions that took place in the opening minutes of the day’s trading session, due to fears of possible erroneous transactions.

At the end of the day’s business, a spokesperson for the NYSE confirmed their forecast that the majority of the trades they had scrutinized would be cancelled, while going on to add that their Amex exchange had not reported any systems or technology issues which could have caused the problem “in-house”.

Yesterday’s problems once again serve to highlight the day to day challenges faced by traders on the world’s securities markets, where a huge volume of securities can regularly change hands electronically in fractions of a second, across a dozen venues. Yesterday’s hitch came just a few months after the CBOE, the US ‘s largest options exchange by volume, had to postpone trading for several hours then as the result of its own systems problems.

So far all of the parties potentially involved in yesterday’s fiasco, including Goldman itself, NYSE, Nasdaq and CBOE have been unavailable for further official comment, particularly on how and where the spurious transactions may have originated and the exact amount of losses that may have transpired.

If speculation on the street is right though, then such a $100 million loss that Goldman Sachs may have to absorb still remains a small drop in the ocean compared to anticipated earnings of around $9.5 billion and record earnings per share of $160 that the company headed by CEO Lloyd C. Blankfein expect to make in 2013.