May 06, 2014

Stock tickerAccording to a recent Wall Street Journal report, a software error impacted two options exchanges on the NYSE, cancelling nearly 20,000 trades in the crucial early moments of the day last Tuesday.

The report notes nearly 500,000 options contracts were affected, many of which were aimed to buy or sell shares in the volatile technology sectors. Notable stocks impacted include Amazon.com, Facebook, Twitter, and Tesla Motors. The error occurred within the first 13 minutes of Tuesday’s opening, but the canceled trades weren’t circulated until hours later.

Software errors within stock exchange products, especially at peak trading times, can lead to significant financial losses and a damaged reputation. Anshul Agarwal, an equity derivatives strategist at Bay Crest Partners LLC in New York, said in a Bloomberg Businessweek article, “Any disruption that happens right around the open or close is more meaningful than intraday. Around the open, people have their orders ready to go, so it’s magnified. It puts a question mark in people’s minds about making orders like this for the rest of the day.”

This software error is one of a few recent mishaps in the options industry. Over the summer, Goldman Sachs Group mistakenly issued orders to trade options linked to individual stocks and exchange-traded funds. The U.S. options-exchange decided to cancel most of those trades, potentially saving Goldman from significant financial losses according to the WSJ.

Embedded software testing in these business-critical products could help reduce the chances of these malfunctions occurring, saving institutions from financial loss and public distrust. 

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