Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A trading glitch on the New York Stock Exchange earlier month has cost Interactive Brokers $48mn after its customers tried to pile into Berkshire Hathaway shares following a 99 per cent plunge.
The brokerage on Wednesday said it was considering its options “including any claims at law it could assert against NYSE” but said the hit was not material to earnings.
Berkshire Hathaway’s class A shares were among several that plummeted unexpectedly on June 3 because of a technical issue in early trade on the NYSE, which is part of Intercontinental Exchange.
Berkshire’s shares collapsed from about $622,000 to $185 a share before the exchange halted trading.
The price plunge spurred a raft of buy orders during the halt, “presumably expecting those orders to be filled at approximately $185/share when trading resumed”, Interactive said.
The broker, founded by electronic trading pioneer Thomas Peterffy, is popular with retail investors as well as professional traders such as hedge funds.
When trading resumed almost two hours later Berkshire’s shares shot as high as $741,941 within minutes, leading Interactive’s customers to have their orders filled “at various prices during this run-up, including some who were filled at the peak price”.
After markets closed on June 3, NYSE said it would “bust” or cancel, all trades at or below $603,718.3 conducted before trading was halted.
The loss stems from Interactive Brokers’ decision to take over a substantial portion of the trades through its platform “as a customer accommodation” after NYSE on the day told the brokerage that it would not cancel Interactive’s deals as the broker had asked.
NYSE on Tuesday denied Interactive’s subsequent claims for compensation, spurring Wednesday’s notice. NYSE declined to comment.
About 40 securities in total were affected by the June 3 episode, including Barrick Gold and restaurant chain Chipotle. The exchange said the glitch stemmed from a technical issue with price bands published by the group that consolidates the trading data from all the US securities exchanges, known colloquially as the “tape”.
Shares in Interactive Brokers were unaffected by Wednesday’s news, trading up 0.5 per cent by late morning on Wednesday and up about 48 per cent this year.
In 2020 the brokerage lost up to $88mn from the collapse in value of short-term WTI oil futures contracts when it stepped in to pay margin calls owed to clearing houses for customers caught on the wrong side of the trade.
