A computer glitch in trading systems at Goldman Sachs on August 20 has focussed attention yet again on electronic trading systems as it comes to light that the company could stand to lose US$100m as a result of the event.

According to reports, a large number of trades - many covering NASDAQ OMX, CBOE and NYSE Euronext - were executed after the system used to track price options on behalf of clients suffered a glitch.

NASDAQ, along with the other market players affected, are currently reviewing the trades which took place over 17 minutes at the start of the day with the view of cancelling many of them after a number of trades were offered at default prices differing from market price for options.

According to a report by financial news agency Bloomberg, which carried out its own research into the markets on that day, the trading could have affected around 400,000 contracts for companies including Kellogg, Johnson & Johsnon and JP Morgan Chase.

Goldman Sachs, however, said: “Neither the risk nor the potential loss is material to the financial condition of the firm (Goldman Sachs).”

The incident comes at a time when regulators are increasingly asking how the technology-led pace of innovation used by the financial services industry can be balanced with safeguarding financial markets.

Debate on the issue has become heated ever since a glitch with US trading firm Knight Capital’s system saw it sell all stocks bought a day after receiving them in August last year.

The incident cost Knight Capital US$461.1m – a pre-tax loss – severely affecting its capital base.

Many banks have started to use algorithms for online trading, with speed of execution being at the heart of their market play.

The TABB Group estimates that about US$2bn in revenue from US equities trade will be generated by high frequency trading in 2013.

In its 21^st Century Outlook, Tabb Group senior analyst Rebecca Healey said the market is about to be “radically reconstructed” as a result of the development of new technologies and their adoption.

“We believe . . . that access to multiple products and services across the investment bank – specifically access to the right information at the right time in the right format, which will differ from client to client, desk to desk, from one portfolio manager to another – will revolutionise the traditional silo’d capital markets model,” Healey said.

She said much of this will be allowed through the adoption of regulation, which will make the markets more transparent and collaborative.

Read more about US trading concerns in our article on capital markets technology which first appeared in FOCUS, issue 28, here.