Wall Street’s Worst Computer Glitches

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Post updated on September 20th at 2:00pm.

A computer glitch at the Treasury Market blocked Goldman Sachs from bidding on part of $30 billion worth of 3-month, U.S. government debt, reports The Wall Street Journal

According to the Treasury Department, “Our manual attempts to address the issue ultimately resulted in the bidder being awarded a larger sum of 6-month bills than originally intended, in excess of the ’35 percent rule’ for competitive bidders in Treasury auctions.” The statement went on to say that the decision to temporarily wave the 35% rule was in the best interest of debt markets overall.

Though the glitch at Treasury’s TAAPS computer system seems to have been minor and the effects limited, it does underscore the computer problems that have shadowed Wall Street and the financial services industries over the past several years.

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Here are just a few examples of the computer glitches which have costs financial firms:

1. 2010 Flash Crash: On May 6, 2010 the Dow Jones Industrial Average plunged nearly 1000 points — the largest intraday point drop ever — only to recover the losses minutes later. Unsettling economic news from the European debt crisis conspired with trigger happy high-frequency trading algorithms to spark a massive selloff that was quickly recovered.

2. Facebook IPO: NASDAQ botched the 2012 Facebook IPO. As my colleague Sam Gustin wrote at the time:

Trading was delayed for 30 minutes on Friday because the exchange had trouble matching buy and sell orders. Trades for millions of shares were never confirmed, and some traders didn’t receive trade confirmation for hours — some not even until Monday morning. These snafus may have caused some investors to not trade any further, hurting the stock’s first-day performance. One trading executive called it “arguably the worst performance by an exchange on an IPO ever.”

3. Knight Capital Partners: In August of 2012, a bug in one of Knight Capital’s high-frequency trading algorithms triggered a $440 million loss and nearly led to the collapse of the firm entirely before a consortium of investors were able to swoop in and save the firm from insolvency.

4. NASDAQ Halts Trading for Three Hours: On August 22, NASDAQ had to shut down trading for three hours in order to resolve an issue with its Securities Information Processor Computer System, which was unable to communicate prices to other exchanges across the country.

5. Options Price Reporting Authority: Earlier this week, options trading briefly froze after the Options Price Reporting Authority had a computer glitch in its program. The issue prompted a halt in trading of options at the exchanges NASDAQ, the Chicago Board of Options Exchange, Bats, and NYSE Euronext.

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The increasing frequency of these incidents is giving many pause about the financial system’s plumbing. The widespread reliance on complex computer systems for facilitating trades combined with the markets being dominated by high-frequency trading algorithms that trade more quickly than human beings can comprehend are having a profound impact on markets.

This post was updated to include a statement from the Treasury Department.