'Fat finger trade' suspected of causing sudden FTSE fall

Pointing The Finger

A dramatic drop in the FTSE 100 index is being investigated by the London Stock Exchange amid speculation that a “fat finger” incident is to blame.

Trading in nine companies – including banking group HSBC and oil company BP - was suspended for five minutes on Friday following a trade order that was executed at 12.44.

The move came in an already-volatile dealing session following the US Federal Reserve’s decision on Thursday to hold off raising interest rates.

London’s blue-chip share index was immediately pulled 1% lower – losing around 60 points or equivalent to around £15bn in value - although it regained those losses within minutes.

There was no immediate explanation for the dramatic drop but traders were describing it as a fat finger case, where a market professional makes a mistake in their order.

FTSE 100 fall
The FTSE 100 index on Friday 18 September 2015.

As well as HSBC and BP, shares in tobacco company BAT, drinks group Diageo, National Grid, BHP Billiton, Rio Tinto, BT and Vodafone were subjected to the LSE’s circuit breakers, a five-minute trading pause to allow trading to normalise.

The companies were caught up in a basket trade order, the LSE said, where a number of stocks are traded at one time. The loss to the unidentified trader behind the transaction was estimated at around £500,000 on the basis of volumes traded on the London Stock Exchange.

“Systems worked as they should with certain stocks entering an automated trading period, with continuous trading resuming following that,” the stock exchange said.

The impact was dramatic on HSBC which fell almost 5% before recovering as soon as the circuit-breaking session was completed. The wider FTSE index ultimately ended the day 82 points lower, or down 1.3%, at 6,104.

HSBC, one of the biggest stocks in the index, has been caught up in a fat finger incident before. In January 2014 it jumped nearly 10% in a few minutes, in a trade which was estimated to have lost the trader around £400,000. On the same day, Diageo’s shares suddenly jumped 11%.

Last year, orders in 42 companies on Japan’s stock exchange such as Sony, Honda and Nomura – worth 67.78tn yen (£380bn) were cancelled before they could be traded.

But not all sudden market moves can be blamed on fat fingers. Sometimes automated systems, guided by computer algorithms, are blamed.

The London stock market had been trading for the first time since the Fed cited concerns about the health of the global economy after deciding not to raise US interests for the first time since 2006.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Friday 18th September 2015 17.39 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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