Bats Global Markets Inc. reported that, over a period of four years, its computers allowed trades which violated the rules intended to ensure all investors get the best prices for equities.
The machines that match orders for two of Bats equity exchanges and an options venue permitted some trades to happen at prices substandard to the best accessible bid or offer, and facilitated others to infringe rules for short sales, or bearish bets. The company disclosed this information on its official website. Customers lost $420,360, because of rule violations, Randy Williams, a Bats spokesman, said by e-mail.
The problem caused technical violation of rules in the U.S., where trading is dispersed across 13 exchanges and dozens of other venues directed towards maintaining fairness.
“Once again, we see there’s a problem with electronic systems, this time an exchange system,” said Larry Harris, a finance and business economics professor at the University of Southern California in Los Angeles and former chief economist at the U.S. Securities and Exchange Commission. “Bats will get a lot of scrutiny from the SEC at a time when nobody wants that kind of attention. That said, it’s important to recognize that Bats itself identified the problem and brought it to public attention and to the attention of regulators.”
The computers of Bat exchange allowed trade accidentally. One regulation engages the best bid and offers an essential notion focused on making certain that even as exchange propagates, investors who want to buy and sell shares can be confident they are getting the best prices.
According to Bats, certain mistakes occurred with so-called-price-sliding orders that re-price trade requests stand on the movement of the national best bid or offer, under definite conditions concerning other orders.
“It’s a miniscule amount of trades but I don’t think the regulators have the tools to keep up with the technology that’s out there and the sheer number of quotes and trades going on,” said Joseph Saluzzi, partner and co-head of equity trading at Themis Trading LLC in Chatham, New Jersey. “Is this happening at other exchanges? Can I trust regulators to find out? I don’t know.”
Bats, which stand for Better Alternative Trading System, gained a foothold with the proliferation of electronic firms that now control the buying and selling of equities in the U.S. The six-year-old equity exchange cancelled its IPO on March 23, owing to errors on its own computer systems, which disallowed its stock for trading.