[Is this what they mean by randomness in the EMH? :-)]
Slip of finger that cost City dearly
Jill Treanor, deputy city editor
Wednesday May 16, 2001
The Guardian
An incidence of "fat finger syndrome" - inadvertently pressing the
wrong button on a computer keyboard - landed an American investment
bank with multimillion pound losses yesterday and is expected to cost
the young City trader involved his job.
Lehman Brothers, a big US firm based in the Square Mile, is having to
provide an urgent explanation to the stock exchange and the financial
services authority, the city watchdog, who want to know the reason for
a mistake that caused a 120 point fall on the FTSE 100 index on Monday
afternoon, temporarily wiping almost £40bn from the value of Britain's
top companies.
The bank was in the process of completing a complicated share trade,
which involved the simultaneous computerised sale of almost all the
shares in the Top 100 index.
According to City sources, the trader inadvertently entered details to
sell shares in leading companies such as oil company BP and
pharmaceuticals group Astra Zeneca which were 100 times bigger than he
had intended.
The deal amounted to £300m rather than £3m and flashed across stock
market screens just as the stock market was about to close, causing a
precipitous fall on the Footsie, the barometer of British corporate
health.
While computer keyboard errors have affected the market before, they
have not had the extreme consequences of Monday when the FTSE 100
index will forever register a close some 200 points lower than had
been expected.
It closed at 5,690 on Monday but yesterday had recoved to 5,892 as
share prices corrected themselves. Lehman Brothers was said to be
nursing losses of between £5m and £10m, having been forced to buy back
shares it had not intended to sell.
The exact scale of the losses is difficult to quantify because they
increased as the stock market rose yesterday.
One City source said the error occurred when a trader had tried to
input a fraction - expressed as a decimal - such as 0.5, but had input
50 instead.
Lehman Brothers refused to comment but other investment banks
confirmed that an error on its trading desk late on Monday had been
the cause for the stock market decline.
The US bank faces a hefty fine from the stock exchange if its
investigation concludes that it failed to have systems in place to
prevent an erroneous deal being executed. The FSA has the powers to
censor individuals involved. Even if the loss was caused by a genuine
mistake, City regulators want to establish why Lehman's internal
computer systems did not ring alarm bells and prevent the trade taking
place.
One source described it as a case of "fat fingers" - pressing too many
keys. The stock exchange said: "We are talking to the member firm
concerned and treating it as human error. We want to know how the
error slipped through the net."
The FSA said it was monitoring the situation but neither it nor the
stock exchange would confirm the offending firm was Lehman Brothers.
