11-7-13 5:22 PM EST | Email Article

By Kaitlyn Kiernan

The 12 U.S. options exchanges are close to issuing a uniform rule on how to handle erroneous trades, according to exchange leaders at an industry event in Chicago on Thursday.

"We will come out with harmonized obvious error rules," Jeromee Johnson, head of BATS Options at BATS Global Markets, said at the Futures Industry Association's Futures & Options Expo. "There are still some discrepancies, but we're close," he said.

The exchanges are expected to file a uniform rule with the Securities and Exchange Commission as early as Nov. 12, according to a person familiar with the discussions.

The options exchanges came together to develop the rule at the request of Securities and Exchange Commission Chairman Mary Jo White. In September, Ms. White told attendees at a three-hour meeting that exchanges and regulators need to focus on rebuilding confidence that markets will be able to operate in all kinds of trading environments. The difference in rules among the exchanges was just one of many issues the exchanges are working together to address.

The request for a uniform rule on how exchanges address trades that are deemed an obvious or "catastrophic" error came after confusion following a rash of errant trades from Goldman Sachs Group Inc. (GS) in August. While the stock market has rules governing faulty trades that extend across all exchanges, in the options market each of the 12 U.S. exchanges sets its own rules.

In August, a faulty system at Goldman mistakenly issued waves of orders to trade stock-options contracts, in some cases at prices that were far off the prevailing market rate, with many at $1. The differing rules created uncertainty in the market as trading firms awaited the trades' fate.

While NYSE Euronext's (NYX) Amex exchange killed most of the trades it processed, Deutsche Boerse AG's (DBOEF, DBK.XE) International Securities Exchange decided to adjust most of the ones it handled. At ISE, all trades are adjusted unless a small investor was on one side of the trade, or unless both sides agree to cancel the trade.

The exchanges are close to developing a unified rule more in line with the ISE rules with a bias toward adjusting trades unless an individual investor is involved in the trade, said Steven Crutchfield, head of U.S. options at NYSE, at the FIA event.

In August, Goldman Sachs was liable to suffer losses into the hundreds of millions of dollars had its errant trades remained intact. But with most of the transactions trading on NYSE's Amex exchange, which canceled the majority of the Goldman trades based on the exchange's "obvious error" rules, the hit to investement bank from the technology glitch was small.

Write to Kaitlyn Kiernan at kaitlyn.kiernan@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 07, 2013 17:22 ET (22:22 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.
Add a Comment

News   More...

Start Premium Trial Register For Free

P F Fund Financial Data (13,000+ funds)
P F Stock Financial Data (7,000+ stocks)
P F Stock and Fund Screeners (basic)
P F Investing Articles and Market Commentary
P F Articles Archive (>30 days)
P F Discuss (dozens of stock, fund, bond, and general bulletin boards)
P F Portfolio Manager (basic)
P F Morningstar Investment Classroom
P F Access Your Portfolio Anytime, Anywhere via Your Mobile Device
P   Morningstar Fund Analyst Reports (full research on 1,700 funds, ETFs, and CEFs)
P   Morningstar Stock Analyst Reports (full research on more than 1,100 stocks)
P   Portfolio Manager (advanced with 10 X-Ray analyses, including recommendations)
P   Portfolio Monitor (monthly and on-demand personalized portfolio statements)
P   Morningstar Proprietary Stock Information (stock star ratings, buy/sell prices, economic moat ratings, and more)
P   Morningstar 5-Star Stock and Fund Favorites & Red Flags eNewsletters
P   Premium Stock and Fund Screeners (advanced with nearly infinite ways to find the best securities for you)
P   Discounts on Morningstar newsletters, books, seminars, and more

Sign-up to Morningstar

Basic Access

Articles and Videos
Morningstar video reports, articles, data, and tools. Dig into our lineup of e-newsletters and investing classroom courses outlining sensible strategies for maximizing your investments.
Morningstar Discuss
Follow the buzz on individual stocks or fund families. Plus, read the latest posts from Morningstar members and analysts.
Portfolio Manager
Track your investments and watch lists with our Portfolio Manager. Customize your view with our comprehensive stock, fund, and ETF data.

Access these features and more when you sign up for Free Membership.
Join Morningstar today. It's Free.

Unlimited Access

Analyst Research
Gather in-depth, actionable insight on over 3,700 stock and mutual funds covered by Morningstar analysts. View our mutual fund Analyst Reports favored by professionals, savvy experienced investors, and new investors researching options for retirement savings, college plans, or other investment needs.
Portfolio X-Ray®
Ensure your portfolio is positioned exactly how you want with Morningstar's X-Ray Interpreter and Stock Intersection tools. A Barron's "Best of the Web" award winner for five years running, X-Ray Interpreter goes under the hood of your portfolio to provide a useful allocation, sector, and geographic analysis. And you can discover how much of a stock you really own, individually and through mutual funds, with Stock Intersection.
Investment Picks
Find new 5-star stocks (greatly undervalued companies) to consider daily. Our 5-star stock rating is a proven winner, consistently beating benchmarks like the S&P 500. Plus, browse our Fund Analyst Picks and Stewardship Grades to find shareholder-friendly mutual funds that are poised for outperformance.
Portfolio Monitor
Get a clear view of your investments with personalized reports about your portfolio. Receive monthly statements and generate reports on-demand to help you stay on track to meet your investment goals.

Access these features and more when you sign up for Premium Membership.
Start your free 14-day trial today online
Your subscription may be tax deductible. Please contact your tax advisor.

Content Partners
Morningstar - 2013/11/7 - U.S. Options Exchanges Close to Issuing Uniform Rule on Erroneous Trades, Exchange Leaders Say
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Title |  Date |  Company |  Symbol |  Interest |  Popularity Title |  Date |  Author |  Collection |  Interest |  Popularity

Previous: U.S. Olympic Silver Medal Sprinter Manteo Mitchell Signs On With Incrediwear  |  Next: U.S. Patent Issued for O2Micro's Power Converter Controller