Oops! Data-Input Error Caused Monday’s Flash Crash

Citigroup Inc.’s London trading desk was behind a “flash crash” that sent shares across Europe tumbling, dealing a fresh setback to the bank’s years-long efforts to improve controls.

A trader at the U.S. firm made a mistake “inputting a transaction,” Citigroup said late on Monday after a knee-jerk selloff in Swedish stocks in five minutes wreaked havoc in bourses from Paris to Warsaw. The bank said it identified the error “within minutes” and corrected it.

The violent reaction saw the main European index lose as much as 3 percent, wiping out 300 billion euros (US$315 billion) at one point. It revived questions around how large financial firms can prevent such errors, and whether markets have sufficient safeguards in place.

“The reality is that, despite all the fancy control systems, large parts of trading are still manual and human-driven, meaning the ‘fat finger’ isn’t just a metaphor,” said Oliver Scharping, a portfolio manager at Bantleon.

For Citigroup, the incident is a reminder of the work yet to be done as CEO Jane Fraser campaigns to repair the bank’s reputation. The firm’s dysfunction was on display two years ago, when employees mistakenly sent almost $1 billion to Revlon Inc. creditors, an error that resulted in a lengthy and embarrassing public court battle to recover the funds.

Citigroup is in talks with regulators and exchanges about Monday’s incident, according to a person familiar with the matter who asked not to be named discussing information that is not public.

The OMX Stockholm 30 Index closed 1.9 percent lower yesterday, roughly in line with a drop in European markets. It had slumped as much as 8 percent in just five minutes before recovering most of the losses shortly after.

Scharping said lower volatility breaks in Nordic markets probably played a role, as did the bank holiday in the U.K., which left European stock markets with about a quarter less liquidity than normal.

“The trade yesterday caused one of the larger ‘flash crashes’ our team can remember, as it did hit a rather large liquidity hole,” he said.

The incident came days after the U.S. Office of the Comptroller of the Currency (OCC) lifted a 10-year-old consent order with Citigroup in a victory for Fraser, who’s dedicated thousands of employees to improving risk and controls systems. The bank is still working to address two other consent orders with the OCC and the Federal Reserve stemming from 2020.

The error could potentially cause monetary and reputational damage to Citigroup, as Nasdaq said it will not cancel any trades made on the Nordic markets. A spokesman for Nasdaq Stockholm had said the short-lived slump wasn’t a technical glitch on its part.

—With assistance from Jonas Ekblom, Christopher Jungstedt, Sridhar Natarajan, Thyagaraju Adinarayan & David Scheer.