Trader error causes 5-minute crash on European stocks

Citigroup admitted a mistake by one of its traders on Monday, hours after some European stocks were hit by a sudden, short-lived sharp drop.

Scandinavian equities were particularly hard hit in a quiet trading session on Monday in Europe, and the OMX 30 index, the benchmark for the Swedish stock market, fell as much as 7.9% before closing the day down 1 .9%.

Markets in Paris, Amsterdam and Brussels were also affected by the sudden surge in sales, which took place over a five-minute period around 10 am Central European time. Overall, the Europe Stoxx 600 regional index tumbled as much as 3% before recouping some of its losses and closing down 1.5%. Affected companies include Finnish insurance company Sampo, Dutch insurance company NN and Swedish investment group Kinnevik.

Operational errors and so-called “flash crashes”, caused by algorithms that get out of control, can cause severe drops in markets in a matter of minutes. It is not uncommon for them to happen in the world stock markets, but they usually affect individual stocks or indices.

Market participants attributed the sharp declines to an error in a Citi transaction involving a basket of stocks that included many Swedish companies, which took place during a day when markets in London, one of Europe’s most important financial centers, were closed for a holiday.

Citi later confirmed that one of its traders had “made an error while entering transaction data”, without adding further details.

“Within minutes, we identified the error and corrected it,” the bank said in a statement.

Nasdaq and Euronext, which own the markets where the drops took place, both announced that the transactions would continue. For Citi, the operational accident evokes memories of a mishap suffered in 2020, when the bank erroneously transferred $900 million (R$ 4.5 billion) to creditors of cosmetics company Revlon.

The bank was only able to recover a portion of these funds. It was subsequently fined US$400 million (R$2 billion) by US regulatory authorities for failing to correct deficiencies in its risk management and control systems, and instructed to update its processes and technology.

Jane Fraser, Citi’s chief executive since February 2021, emphasized that controls and risk management remain a priority for the bank, referring to them as “non-tradable” at an investor event held in March.

The term “flash crash” was coined in 2010, when US stock indices plummeted with dizzying speed after computers found problems reacting to a large transaction on the US futures market, setting off a chain reaction that spread. for the stock markets.

Translation by Paulo Migliacci