I am a deeply superficial person - Andy Warhol
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Stock losses might be down to human error
WHEN THE US STOCK MARKET dived for a breathtaking 9.2 per cent loss briefly yesterday before retracing to end with 'only' a 350 point crash in the Dow Jones Industrial Average (DJIA), many share owners might have considered grabbing a shotgun and heading for the hills.
It appears they may have been more justified to grab a particular trader at Citigroup, if some sources are to be believed.
Citigroup has been quick to deny these suggestions. "We, along with the rest of the financial industry, are investigating to find the source of today's market volatility," it said. "At this point we have no evidence that Citi was involved in any erroneous transaction."
The 'erroneous transaction' is thought to have involved a trader who entered a B for billions instead of an M for millions when keying in a sell order. Easy to do, as those two keys are only seperated by an N, after all.
The result of this lapse of concentration or fat-fingery was a 1,000 point tumble within just 20 minutes on the DJIA.
Procter & Gamble is the company thought to have been affected by the trader's mistake, and accordingly its shares plummeted. The firm quickly pointed its finger at the US stock market trading technology.
"We don't know what caused it," said Procter & Gamble spokeswoman Jennifer Chelune. "We know that that was an electronic trade... and we're looking into it with Nasdaq and the other major electronic exchanges." µ
Tags: Friction
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Has anyone ever written the value of a financial transaction? Other than when using cheques?
I'm shocked that a multi-billion share order doesn't have to get double-checked or signed off. If I order 2000 pizzas, even if the pizzeria accepts the order, my credit limit won't cover it. I guess banks are pretty sure they'll be bailed-out, as long as their mistakes are big enough to sink the world economy.
Just how often do they make billion share trades any way? We could make things a lot safer by disabling that 'B' key, and forcing traders to split big orders into multiple 'M' orders.
I'm totally with you.... it is hard to believe the whole system came tumbling down because of a typo but considering I had a contract at The Bank of Canada it doesn't surprise me.
Canada only avoided the market crash because here we are too incompetent to have realized that risky loans was the latest trend. It seems that Canada has been stuck in the early 80's and have not left yet... heck we officially do not consider cyber events as threats here so hackers of the world unit and hack Canada we won't do anything about it.
You wanna know what caused the meltdown? Predatory High Frequency Trading Algorithms.
The usual suspects of Goldman Sachs, Morgan-Stanley, UBS, et.al., all have servers co-located with the NYSE and the NASDAQ. They have software that "sniffs" incoming orders, analyzes those orders and jumps in front of them, screwing both buyers and sellers.
They get rebates for transactions from the exchanges, so they are incentivized to drive volume as high as possible. They have software which can be used to front-run trades, (Goldman Sachs admitted this last year when the code was stolen by an ex-employee.)
In other words, they have Means, Motive and Opportunity.
The solution is to ban HFT and ban ANY organization from having servers co-located at the exchanges.
Front-running is already illegal, but the SEC regulators spend too much time surfing for p0rn to actually do their jobs.
http://rockonomics.net
It is interesting to see that a simple letter mistake can mess the whole market making companies (and individuals) loose (M) illions or (B) illions of dolars in minutes.
Wow!!! Isn't the system really THAT fragile?