Five of the worst fat finger trading errors
For all the risk management strategies and investment in trading systems, there’s always room for mistakes to cause chaos in the markets. Trading errors caused by a broker pressing the wrong button or an IT glitch are pretty common, though only a few make the headlines.
Here we look at some of the worst ‘fat finger’ trading errors in history.
More than $617 billion in erroneous stock orders flooded Japan’s over-the-counter market at the beginning of October 2014. Among them were orders for 1.9 billion shares in Toyota, approximately 57 per cent of the company’s stock.
Fortunately, the broker involved was able to cancel the orders before they were fulfilled. If it had gone through, the order would have been worth more than the value of Sweden’s economy.
In 2009, a trader at UBS accidentally ordered £22 billion of Capcom bonds while trying to buy just £220,000. This took place out of trading hours and was spotted straight away by the Tokyo market.
While human error is often the cause of these sort of incidents, UBS said that in this case it was a computer problem that was at fault.
The Japanese government launched an investigation into how to prevent a repeat of this episode, which caused chaos in the markets. Shares in J-Com slumped after a broker at Mizuho Securities tried to sell 610,000 shares at 1 yen, when they had intended to sell one share for 610,000 yen. J-Com recovered by the end of the day but the error cost Mizuho 27 billion yen, or around $280 million.
It was a “monumental trading error”, as Barclays Capital pointed out, but Mizuho had deep enough pockets to withstand the hit, which cannot be said for every brokerage firm.
Knight Capital, 2012
Knight Capital Group almost went bankrupt after losing more than $450 million when its computers made erroneous errors that could not be rescinded. It was later bailed out and sold.
The firm said a faulty upgrade to its trading software caused numerous erroneous trades to be sent.
Lehman Brothers, 2001
Perhaps the writing should have been on the wall for Lehman Brothers several years before it went belly up. In May 2001 a dealer at the firm’s London office wiped a cool £30 billion off the FTSE when he inadvertently ordered sales of shares in blue-chip companies such as BP and AstraZeneca that were 100 times larger than intended.
The hapless trader keyed in £300 million for a trade instead of £3 million. A fine of just £20,000 was the result.