Beware the Fat-Thumbed Trader!

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.

Pebkak_2

 

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 . . .

Ftb_2

>

Source:
The fat finger points to trouble for traders 

Financial News, 14 Mar 2007
http://www.financialnews-us.com/?page=ushome&contentid=2447370453

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What's been said:

Discussions found on the web:
  1. epicurus commented on Mar 14

    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.

  2. tootey commented on Mar 14

    how does 4 even happen? If the kid buys 610K shares at 1 yen the trade would never go through? If it did he’s a hero. Have these things been checked?

  3. Leisa commented on Mar 14

    I remember when I had a security (I forget which) but clearly someone wanted to buy 1000 shares and put that in as the price. Well as soon as the order cleared, the value of my 300 shares flashed 300K. I thought I had died and gone to heaven. Oh well. I always make sure that I check and the Fidelity ATP screen has a dummy proof preview.

  4. Jason G. commented on Mar 14

    I always used the term PICNIC… Problem In Chair, Not In Computer…

  5. shawn commented on Mar 14

    Very funny! Good finds!

  6. PAUL commented on Mar 14

    I use Schwab and was about to instantly lose $40,000 -Schwab refused to make the trade followed up with a telephone call –

    They also tell you on the 2nd confirmation before you make the entry – that they (their computer) thinks that you are over the bid or under the ask – that has happened more than once. They also tell you that you have an order in – and ask where are you going to get the shares – What they don’t do well is let you have a stop loss , stop gain and when they fill one – they don’t cancel the other.

    paul

  7. Michael C. commented on Mar 14

    Off topic…

    Jim Cramer saying “I hate to be so open-ended, but remember the rule: 200 points per subprime failure. And there are a dozen to go.

    I guess the subprime mess may be at a crescendo if he is calling for another 2,400 points to be shaved off the market. I love his extreme market calls. Always so anti-prescient.

  8. DavidB commented on Mar 14

    Or how about errors of omission. I forgot that I had a shorted option expiring in a given month. When it got exercised it set off a chain reaction in my account. I didn’t have the money to purchase the shares to cover and I didn’t have the shares(I was selling the front months and covering them with leaps) so the broker automatically started liquidating everything to cover the cash without even contacting me(they can do that in their agreement). They did send me an email but it was way after the fact

    By the time I looked at the mess it looked like a bomb had gone off in my account.

    I surely NEVER let that happen again

    I have a feeling the compliance boys love opportunities like that. Surely they could rationally move things around and sell and buy different things sanely but they probably get plenty of yucks out of playing bull in a china shop

  9. ~mikey commented on Mar 15

    Watching my screen this very morning I saw BRK.A show a highlight low of around 3557 which was the bid on BRK.B. It didn’t last long and I didn’t see the number of shares but I’m sure it didn’t take long for someone to smack a forehead, sweat, and grovel to his broker… A full minute later it got cancelled. Somehow. ~m

  10. typo commented on Aug 2

    doesn’t chair begin with a C ?

  11. noot commented on Aug 2

    The Mizuho trade was a sell, not a buy …

  12. Aunit commented on Aug 3

    Mizuho…trader but in a sell order (not buy order as indicated in the article). Fat finger journal error ;)

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