The third largest stock exchange operator in the US, BATS, has revealed previously unreported systems issues which have affected its pricing processes dating back to 2008.

In a company statement published on BATS' website on Wednesday, the operator disclosed that there had been certain cases on its two stock exchanges, BYX Exchange and BZX Exchange, and on BATS Options where its matching engine would allow for a trade through or an execution of a short sale order at a price that was equal to or less than the NBB when a short sale circuit breaker was in effect under Regulation SHO.

The company further revealed that there had been occasions when the system was programmed to allow non-displayed peg orders to re-price in response to a change in the NBBO prior to sliding previously booked contra-side hidden orders that now cross an away market centre.

As a result, the group said it was "possible" that in response to a change in the NBBO, the price of a resting hidden order could be crossing the NBBO momentarily and an execution could occur at that crossing price against a peg order that was re-priced in response to the NBBO change, resulting in a trade through.

BATS added that this particular issue could also result in a short sale order executing at a price that was equal to or less than the NBB while a Regulation SHO short circuit breaker was in effect.

From February 26th 2010 to January 4th 2013, some 617 trade-throughs occurred on BATS Options. Between October 15 2010 and January 4 2013, 7,884 trade-throughs occurred on the BYX Exchange and between October 24 2008 and January 4 2013, 433,039 occurred on the BZX Exchange.

The company stated that it plans to deploy a permanent change to correct the second case on or about January 18 and the first case on or about January 25.

MF

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