“Fat fingers”: Fat finger trades – The devastating typos on the stock market | news
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• Fat finger trades are mistakes made when entering an order
• Usually it is a matter of transposed digits or unintentional mix-ups
• Errors not very common, but sometimes spectacular
Errors when entering an order in exchange trading are called fat finger trades or fat finger errors. Such a mistake, which is triggered by a “fat finger” in a figurative sense, can lead to considerable distortions on the capital market. Because, as many financial institutions and stockbrokers have discovered over the years, an extra zero here or there and the difference between millions and billions can make a very big difference.
How Do Fat Finger Trades Occur?
In the most common cases, fat finger trades involved classic transposed digits or unintentional mix-ups between order volume, number of units and securities identification number. In this context, the work intensity and concentration level of brokers and stock exchange traders as well as the lack of control over the release of individual orders also play an important role. As a rule, a fat finger error is a human error.
How often does this phenomenon occur?
Considering that there are hundreds of markets around the world that process trillions of transactions every day at breakneck speed, the frequency of fat finger trades is relatively low. For this reason, it is all the more embarrassing for the broker when he makes such a typo.
Are Fat Finger Trades Always Legal?
In April 2018, Bloomberg news agency reported that Deutsche Bank accidentally transferred €28 billion to an external account at Deutsche Boerse’s Eurex clearinghouse as part of its day-to-day derivatives business. After the mistake became known, however, the money was immediately transferred back. This example clearly shows that certain typing errors in the financial sector are not always legally binding. However, in order to guarantee legal certainty, many stock exchanges have so-called mistrade rules. These guidelines prescribe deadlines and conditions that regulate the compensation for a failed stock exchange transaction.
The “biggest fingers” of all time
The list of fat finger trades worldwide is endless. Nevertheless, it is worth taking a closer look at the biggest and most spectacular mishaps, as almost no financial institution in the world is spared from them.
Flash crash due to errors by Citigroup
At the beginning of May 2022, a sudden price drop caused horror on the European stock exchanges. The shock wave spread across the European continent in a matter of seconds, and within a few minutes, many European indices plummeted by several percent. As the Swiss “Handelzeitung” reported, in absolute terms a fortune of 300 billion euros was destroyed within a few minutes. There was a lot of guesswork among stockbrokers at first, since no economic report, company figures, political decision or the like could explain the unusual price movements – especially since the price loss was balanced out again after a few minutes.
Then it turned out that this was also a fat finger trade: A trader in Citigroup’s London trading department made a “mistake when entering a transaction”, as the major US bank announced. “Within minutes we identified and corrected the error,” Citigroup told CNBC. What exactly the error was, however, was not explained.
This wasn’t Citigroup’s first major blunder. Just two years earlier, in 2020, a bank trader had mistakenly transferred $900 million to bondholders of US cosmetics company Revlon, prompting several costly and lengthy court cases to recover the funds. At that time, Citigroup was fined $400 million for deficiencies in its risk and control system.
billions instead of millions
In February 2007, a Morgan Stanley dealer committed one of the biggest faux pas in the company’s history. When the broker placed an order for 100,000 shares, he missed the default order multiplier of 1,000. Instead of the desired order volume of 10.8 million US dollars, the trader ordered shares worth 10.8 billion US dollars. However, the typo was not noticed until after more than $870 million worth of shares had already been posted. The bank also had to pay a $300,000 fine to the New York Stock Exchange for its broker’s blunder.
pounds instead of euros
A mistrade at Ryanair makes it clear that not only brokers can have “fat fingers” on the stock exchange. When a market maker mistook sterling for the euro in October 2002, London-traded airline stock shot up 61 percent.
16 yen instead of 16 shares
In December 2001, UBS supported the sale of new shares in the Japanese advertising agency Dentsu. However, the broker of the major Swiss bank made a fatal mistake. Instead of selling 16 shares at 610,000 yen each, the dealer sold 610,000 Dentsu shares at 16 yen per share.
“Zero-sum game” at Lehman and UBS
A broker from the now insolvent US investment bank Lehman Brothers destroyed more than 44 billion euros in stock market value with a fat finger trade within seconds. In a sell order, the trader mistyped by two zeros and thus sold a hundred times more shares than originally planned. The investment bank had to pay a fine of more than 20,000 euros for this faux pas.
The major Swiss bank UBS has also had a problem with too many zeros. Because a bank broker gave his order too many zeros and traded around ten million Roche shares within a few seconds. At that point in time, January 1999, there were only around seven million shares in the pharmaceutical company.
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