Investors burned by last month’s malfunction on the New York Stock Exchange can recoup all their losses, but only if their trades fit within certain parameters. The rest can end up with nothing.
The exchange trader told clients in recent days of its plans to cover all losses on orders posted or routed to the NYSE, while losing trades made elsewhere will not be covered, according to people with knowledge of the matter. In practice, three firms say that the NYSE will only reimburse about 60% of the claims filed. Others may qualify for more, one of the people said.
The refund, which ranges in single-digit millions, adds up to far more than the $500,000 the NYSE sets aside each month to cover outages, with $50,000 rolling over from prior months. The NYSE may have to seek permission from regulators to cover losses in excess of that pool, the people said.
“In accordance with our rules, we expect to refund members 100% of all affected orders received by the exchange,” a NYSE spokesperson said in an emailed statement Monday. “This is part of the protections that come with trading on a transparent public exchange.”
operations canceled
The failure of January 24, which dates back to human error, canceled thousands of transactions that affected hundreds of securities, including those that fell outside the parameters established to avoid large price swings, or the so-called limit-up, limit-down bands. Other trades were affected, but fell outside the parameters for a trade to be marked “null and void”.
Thousands of trades and hundreds of securities were involved, some marked as “abnormal”. Banks, retailers and industrial companies are among those affected, including Wells Fargo, McDonald’s, Walmart and Morgan Stanley. The error resulted in some swings that spanned nearly 25 percentage points between the high and low prices in a matter of minutes.
The claims were filed by retail brokers including Charles Schwab and Robinhood Markets, as well as market makers Virtu Financial and Citadel Securities, the people said.
The rules for filing claims gave the NYSE until the end of last month to evaluate them and decide how much it would pay. For the 40% or so that don’t qualify, investors will be in a bind, even for trades that were triggered on other exchanges due to mispricing on the NYSE.
Discussions are still ongoing and clients of the exchange, including market makers and retail brokerage firms, can appeal the NYSE’s decision, delaying the calculation if they decide to pursue the matter, the people said.
