Citi's Fat-Fingered European Flash Crash To Cost Bank $50 Million

Citi’s Fat-Fingered European Flash Crash To Cost Bank $50 Million

While much of the world was still snoring in the post-labor day hanogver on May 2 and markets were even more devoid of liquidity than usual, early in the morning Europe’s stock market suddenly puked following a flash-crash in Stockholm, which as we reported at the time was sparked by some shitty math by a London-based Citi index trader.

Fast forward to today when we find that said shitty math’ed fat-finger will cost Citi losses of at least $50 million, according to Bloomberg, while adds that the bank is still tallying losses from the mistaken trade and the final figure could balloon even higher.

As we also reported before, the fat finger took place when a trader in the firm’s Delta One trading unit in London was working from home during a bank holiday on May 2 when the person incorrectly added an extra zero to a trade early in European market hours, sparking a furious five-minute selloff in the OMX Stockholm 30 Index which quickly spread across markets from Paris to Warsaw, wreaking havoc and wiping out 300 billion euros ($322 billion) at one point.

Some background:

Delta One trading products provide clients with ways to hedge or bet on directional moves in markets using derivatives or baskets of securities. It can be cheaper to trade using Delta One strategies rather than obtaining all of the stocks involved.

Generally, Citigroup’s systems automatically break up such large trades and place them as smaller bets. While some of those smaller mistaken trades were stopped by the firm’s internal algorithms following the blunder, others were still allowed to go through. Citigroup is investigating why its algorithms were configured in such a way that the mistaken trades were permitted by the firm’s systems, one of the people said.  

The unnamed staffer has since been placed on leave as Citigroup reviews the incident. The firm has so far determined it was human error that resulted in the trade, and not the fact that the staffer was working from home, although we doubt that risk-management was as tight if the Delta-one guru was transaction in billions, say, out of his toilet rather than a closely supervised trading desk.

As Bloomberg notes, the humiliating mistake – which we have yet to learn if it was intentional and if the resulting selloff was orchestrated, which will prompt questions why the trader isn’t in prison unlike say, Nav Sarao, who infamous fat fingered the S&P back in May 2010 – is a blow for Chief Executive Officer Jane Fraser as well as the firm’s equities chief Fater Belbachir, who has been seeking to increase revenue Citigroup earns from stock trading. The bank generated $4.55 billion from equities trading in 2021, a 25% increase from a year earlier.

Citigroup remains in talks with regulators and exchanges about last month’s incident, according to Bloomberg sources. The firm is in the midst of a yearslong overhaul of many of its underlying technologies and systems as it seeks to improve its internal controls — part of an effort to satisfy a pair of consent orders it entered into with U.S. regulators in 2020. Clearly, those controls don’t exist at all on those occasions when the bank’s traders work from home.

Tyler Durden
Thu, 06/02/2022 – 17:20

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