Fat-finger trade? Citigroup fined for nearly dumping $189 billion of stocks by accident
Did a Typo Nearly Crash the Stock Market?
UK regulators fined Citigroup £62 million ($79 million) after a trading error nearly caused $189 billion in stocks to be sold on European markets. The Financial Conduct Authority and the Bank of England imposed the fines, reduced by 30% due to Citigroup's cooperation. The error involved a trader intending to sell $58 million but accidentally placing an order for $444 billion, of which $189 billion was nearly executed. Citigroup has since enhanced its trading system securities to prevent similar incidents.
How did Citigroup's trading systems initially respond to the erroneous order of $444 billion worth of stocks?
Citigroup's trading systems initially responded to the erroneous order of $444 billion worth of stocks by blocking $255 billion of the order. This means that $189 billion was sent to its trading platform for sale "over the rest of the day." In total, $1.4 billion worth of stocks was sold before the trader canceled the transaction. The FCA pointed out that there was no hard block in place to stop the large inaccurate basket of equities from entering the market, which put the market at risk of disorder.
What specific failures in Citigroup's trading systems led to the near dumping of $189 billion worth of stocks onto European markets?
System Failures and Trader Error
Citigroup's trading systems failed to adequately prevent a significant trading error due to several specific shortcomings. Firstly, the systems allowed an experienced trader to mistakenly input an order to sell $444 billion worth of stocks, instead of the intended $58 million13. The error was exacerbated by the system's failure to have a "hard block" that would automatically reject such a disproportionately large order. Consequently, $189 billion worth of this erroneous order was processed and sent to the trading platform for sale.
Override and Slow Response
Further compounding the risk, the trading system permitted the trader to override a pop-up alert without necessitating a thorough review of the details it contained. This feature contributed to the severity of the situation by not enforcing a mandatory check that could have caught the error. Additionally, Citigroup's real-time monitoring was criticized for being ineffective, with alerts being escalated too slowly to prevent the erroneous order from reaching the market.
Regulatory and Bank Response
These system failings and operational oversights led to a situation that risked creating a disorderly market, prompting significant fines from UK regulators and a reevaluation of Citigroup's trading system securities3. The bank has since taken steps to improve and strengthen its system controls to prevent similar incidents in the future3.