The ‘fat-fingered’ trade that crashed European stocks 

American banking giant Citigroup was fined £61.6 million (R1.45 billion) last week for a ‘fat-finger’ error from one of its bankers executing a trade that caused a flash crash in European stocks. 

The trade resulted in over £1 billion (R23.6 billion) of sale orders being placed, which Citi’s internal systems failed to prevent. 

Citi’s banker had planned to sell European equities worth around $58 million (R1 billion) in May 2022 and began putting together a trade to hedge the bank’s exposure to the MSCI World Index at around 09:00 on 2 May 2022. 

A tool usually used to automatically build a basket of stocks was not available to the trader, forcing them to manually create the group of stocks. 

In Citigroup’s systems, traders have the option of either entering the notional value of a trade they want to make or entering the quantity of index units they want to trade. 

The trader meant to create a basket of equities valued at $58 million but accidentally entered that 58 million into the quantity field instead, creating a mammoth $444 billion basket containing 349 stocks from 13 different countries. 

When the trader first input the erroneous trade, they were met with 711 warning messages. They overrode the ones they could, and the order was placed at 08:56.

Trades began being executed across exchanges in Austria, Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland, sparking a sudden drop in European indexes.

Within five minutes, stock markets from France to Norway were crashing as Citi’s internal systems tried to block some of the sales orders. 

Its internal systems managed to block around $255 billion of equities from being sold, but the remaining $189 billion in orders was placed with a trading algorithm that sold around $1.4 billion.

By 09:10, the trader had cancelled the order, saddling Citigroup with a $48 million loss.  

The sales order coincided with a significant short-term drop for a few minutes in several European markets before the banker discovered the error and cancelled the trade 15 minutes later.

Regulators estimated that the flash crash wiped around $325 billion off European stocks. The trader has since left Citigroup. 

They also said Citi’s London unit had a history of such incidents in the build-up to the massive sale order being placed. 

The bank was found guilty of failing to have adequate controls in place to minimise the likelihood of these mistakes occurring.