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Fat finger costs Japanese broker US$225m
(Guardian/Agencies)
Updated: 2005-12-10 06:34
It is known as fat finger syndrome the occasional tendency of stressed
traders working in fast-moving electronic financial markets to press the wrong
button on their keyboard and, in the process, lose their employer a mint.
On Thursday it hit the Tokyo stock exchange, and in spectacular fashion.
An unnamed and, presumably, shortly to be unemployed broker, managed to sell
610,000 shares at 1 yen (less than a penny) apiece in a job recruiting firm
called J-Com Co, which was having its public debut on the exchange. It had
actually intended to sell 1 share at 610,000 yen (US$5,041).
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Mizuho Securities President Makoto Fukuda
(foreground) bows in apology at a news conference on Thursday, after the
brokerage made a huge errant order in newly listed shares of small
recruitment firm J-Com Co. [Reuters]
| Worse
still, the number of shares in Mizuho Securities Co's order was 41 times that
J-Com's true outstanding amount, but the Tokyo Stock Exchange processed the
order anyway.
The error caused Mizuho to lose at least 27 billion yen (US$225 million) on a
stock trade, which could prove to be the most expensive trading error in
history.
The glitch roiled the Japanese market, and jitters over the reliability of
the exchange's trading system, contributing to a 1.95 per cent drop in the
benchmark Nikkei 225 index on Thursday.
The index, up 33 per cent this year on optimism about the nation's recovery,
was trading mostly flat on Friday.
For a few hours on Thursday, amid frenzied dealings, the identity of the
brokerage firm concerned remained a mystery. Only after trading had closed did
Mizuho Securities, the broking arm of the Mizuho Financial Group, own up.
"We deeply regret having caused such a big problem," Mizuho said in a
statement. "We are investigating what happened, and discussing with the exchange
how to handle the issue." What might happen next was the subject of widespread
debate.
So-called fat finger errors, while rare in electronic financial markets, are
accepted as an inevitable risk when humans come into contact with computers in
frenetic trading conditions. But such mistakes are usually spotted quickly, with
the resultant "rogue" trades being unwound between the affected parties.
In the Mizuho case, however, no immediate action seems to have been taken,
leaving scores, if not hundreds, of investors across the Tokyo market to carry
on trading stock that had been sold in error.
Mizuho says it tried to cancel the order three times, but the exchange said
it does not cancel transactions even if they are executed on erroneous orders.
It was not clear what action, if any, would be taken against the broker
responsible, but the mistake will have caused ample embarrassment for Mizuho,
Japan's second-biggest bank.
Japan's financial sector, meanwhile, was waiting to gauge the scale of the
damage to its reputation.
The Tokyo Stock Exchange suspended trading of J-Com on Friday, but declined
to specify how it will sort out a mess created by the botched order. Mizuho
Financial Group said it would fully back its security arm's losses from
erroneous trades on J-Com.
Fat finger trades are by no means purely an Asian phenomenon.
In October 2002, a trader at the US bank Bear Stearns was blamed for a
100-point drop in the Dow Jones after he entered a US$4 billion sell order
instead of the intended US$4 million order.
(China Daily 12/10/2005 page1)
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