Direct Edge and the New York Stock Exchange (NYSE) have said that customer transactions may have been executed away from the best available price due to systems errors, bringing the total number of exchanges admitting price errors to three this month.
NYSE's error was the lesser of the two, according to a trading notice posted yesterday. Between 0930 and 0934, it said, problems were experienced in routing orders to markets operated by Direct Edge and the Chicago Board Options Exchange, and orders may have traded through protected quotes. While the error lasted only four minutes, orders may not have traded at the National Best Bid and Offer (NBBO), as mandated by US securities law.
Direct Edge also announced that it had discovered two separate system failures that affected how orders were prioritized. One error had been fixed by January 14, the exchange said, while the other may not be fixed until February 15. The first error had been occuring since late 2011, while the second, more seriously, had been in effect since both EDGA and EDGX, the bourse's two markets, began operations in 2010.
Under the NBBO regulation, brokers and exchanges are obligated to execute the bid and ask at the best possible price on any exchange.
The latest issues follow an admission by BATS Global Markets in a similar vein, where customers may not have been receiving prices according to the NBBO. In that instance, the errors stretched back years.
Under the NBBO regulation, brokers and exchanges are obligated to execute the bid and ask at the best possible price on any exchange. Critics of the policy say that brokers already have best execution duties towards their clients without NBBO being needed.
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