Beware the Fat-Thumbed Trader!

Wednesday, March 14, 2007 | 09:33 AM
I started in this business as a trader, and I am all too familiar with the curse of the "Fat Thumb." That's what we called it when an errant entry ended up buying either too much or too high a price for a given stock. I can recall more than one occasion where I had to sheepishly call the other side of a trade, having paid $118 for 5000 shares of an $18 equity. My head trader always had me start those calls with by saying "nice print" and then break the trade.

Often, it ended up getting processed at the offer (ie, $18.25). These PEBKAKs -- Problem Exists Between Keyboard And Chair -- were more embarrassing than costly (everyone else would have a good laugh at your expense). While you might have gotten nicked for a cents, it was nothing disastrous. Even an extra quarter on 5000 shares was $1,250, which was not too dear in the grand scheme of things.



However, some PEBKAKs were more costly than others, and thanks to the investigative work of Financial News, we have a top 10 list of the most costly keyboard catastrophes. (What follow is a mix of her writing and my comments):

Top 10 Financial Keyboard disasters

1) £80bn Swiss order leaves UBS red-faced (January 1999)

A careless UBS equity specialist executed the world’s single biggest share trade when he bought and sold nearly Sfr190bn (£80bn) of stock in Swiss pharmaceuticals company Roche in two minutes. (Significantly higher than Roche's market cap)  The 10 million share sell order must have been a surprise to the  Swiss Exchange, seeing as there was only seven million shares in the float . . .

2) A bad workman blames his keyboard (October 1998)

Salomon Brothers sold 10,000 futures contracts on French derivatives exchange Matif (losing several million dollars in the process). An independent audit revealed the error had been caused by a trader leaning his elbow on his keyboard’s F12 button, the “instant sell” key. Fat Elbow is apparently a new variation of Fat thumb!

3) London's biggest order (February 2001)

The LSE had to cancel its biggest trade in history after a clumsy trader placed an order for £8.1bn (€11.8bn) worth of shares in Autonomy -- nearly four times the market cap of the company. The order was described by an LSE source as “clearly an inputting error” and was cancelled almost as soon as it hit the order book (apparently, LSE has a good automatic failsafe system)

4) Trainee costs Mizuho $224m (December 2005)

Ouch! Japan’s Mizuho Securities somehow let a 20-year-old trainee with the bank for all of two weeks input large trades. Instead of buying one share of J:Com at ¥610,000, he ordered 610,000 shares at ¥1 each. Mizuho made four unsuccessful attempts to cancel the trade. Too bad the Tokyo Stock Exchange didn't have the same failseafe LSE did -- the bad order was 41 times J:Com’s outstanding stock. The Japanese market dropped 2% and Mizuho lost $224m. (Some of the banks involved agreed to cancel the bad print but quite a few kept the ill gotten gains).

5) A schoolboy error (September 1997)

You idiot! A trader entered Zeneca’s Sedol (CUSIP) number, the six-figure code used by the exchange to identify stocks, instead of the volume, a £21m buy orders for Zeneca shares at three times its price. Total cost: £60m.

6) Lehman Brothers fingered (May 2001)

Doh! A London based Lehman Brothers trader wiped £30bn (€44bn) off the FTSE 100 in 2001 when he ordered sales of shares in blue-chip companies, such as BP and AstraZeneca, that were 100 times larger than intended. He keyed in £300m instead of £3m for a trade, causing a 120-point drop in the index and a £20,000 fine for Lehman Brothers.

7) Oops! Citigroup did it again (January 2006)

Citigroup was investigated by the UK Financial Services Authority for the second time in 18 months after a trader at Nikko Citigroup intended to buy two shares in Nippon Paper at ¥502,000. Instead he input an order for 2,000 shares. Charles Prince, chief executive, flew to Japan to apologise for the bank’s wrongdoing.

8) Bear sends markets plunging (October 2002)

A trader at US bank Bear Stearns was blamed for a 100-point fall in the Dow Jones Industrial Average

after he entered a $4bn sell order instead of a $4m order. More than $600m of stock changed hands before the mistake was detected. The day’s 183-point slump was blamed on the trader's error. Quote: “You can put in one extra zero by accident but to put in three extra zeros is three fat fingers and that’s pretty stupid.”

9) Heads up at Bank of America (September 2006)

Remind me again why there are so many athletes on trading desks: A Bank of America trader’s keyboard was set up to execute an order when the senior trader gave the signal – he just had to press enter. Roughhousing traders tossed a rugby ball in his direction, which landed on his keyboard and executed the $50m trade ahead of schedule. (The ball thrower, a graduate trainee, recieved only a severe reprimand). Quote: “Rugby balls are a regular danger on any trading floor so the victim trader ought to have hedged against this possibility.”

10) UBS Warburg is made to look sheepish (December 2001)

This seems to be a theme with ¥ trades:  A UBS Warburg trader selling 16 shares in Japanese advertising giant Dentsu at ¥600,000 (€3,900) instead sold 610,000 at ¥6 -- hours before UBS was to lead Dentsu’s IPO. The order was cancelled but not before 64,915 shares, almost half of the 135,000 shares in the Tokyo listing, had been sold. UBS Warburg kept its bookrunning position but lost up to $100m when it was forced to buy the shares it sold.

The whole article is definitely worth a read . . .



The fat finger points to trouble for traders 

Financial News, 14 Mar 2007

Wednesday, March 14, 2007 | 09:33 AM | Permalink | Comments (15) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Fat finger errors are like the sign of the beast: everyone knows you made them and nobody forgets. That applies to small beans and major catastrophes alike.

Posted by: epicurus | Mar 14, 2007 9:55:26 AM

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