Fat-Finger Error by Citi Trader Led to Europe’s $315B Flash Crash on Monday

US bank Citigroup has admitted that one of its trading desks was responsible for the recent flash crash in Europe that sent equities plunging. The steep collapse saw an 8% loss in the Swedish Stock index which was hit hard. In total, the mistake wiped off $315 billion from the European stock market momentarily.

Trading Halted On Monday Following Steep Price Declines in Europe

Trading across several European markets was momentarily halted on Monday shortly before 8 a.m GMT after leading shares suffered steep declines. Sweden’s benchmark OMX 30 index was one of the most brutally hit, falling over 8% before recovering most of its losses. However, the share index ended the session down by 1.9%, in line with the general stock market decline.

Several other European Stocks also plummeted briefly. The Europe Stoxx 600 index of Europe’s top stocks dropped by 3% before finishing 1.5% lower.

Following a period of uncertainty over the cause of the price collapse, Citigroup released a statement Monday night taking responsibility. The New York-based bank admitted that one of its traders made an error while inputting a transaction. It further revealed that the mistake was identified quickly and immediately corrected. A spokesperson from the bank disclosed  this to reporters:

“On Monday, one of our traders made an error when inputting a transaction. Within minutes, we identified the error and corrected it,”

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Fat-Finger Error Responsible For European Flash Crash

Human errors continue to be a significant cause of flash crashes even as high-frequency trading firms become common.  These errors can come in the form of mistyping the details of a trade, like in Citigroup’s case. A mistake of this nature is referred to as a fat finger error.

However, human errors are not the only cause of flash crashes. This phenomenon is simply a sudden and sharp drop in the prices of assets before a quick recovery. Most price crashes happen in mere minutes without leaving lasting effects. Besides human mistakes, trading bots also play an even more significant role in flash crashes.

Incidentally, flash crashes are a pretty common occurrence in the finance world. Reports in 2013 estimated as many as 12 mini flash crash daily, and by 2017, over 20,000 had happened. One of the most significant flash crashes occurred on 6 May 2010. The Dow Jones dropped about 9% of its value in minutes, wiping out billions of dollars in stock prices. However, the market swiftly regained its calm and ended the day 3% lower.

Coincidentally, this is not the first time Citigroup has been involved in an error of this magnitude.  In 2020, Citi accidentally wired $900 million of its own money to cosmetics group Revlon’s creditors. At the time, the bank blamed human error for the mistake, which it has been unable to overturn and recoup its money.

However, Citigroup’s latest error may not carry a devastating effect like its previous one. Investors may, however, lose their confidence in the institution with two costly mistakes occurring within a short period of each other.

Following the crash, the European markets recovered but closed slightly lower as Investors responded to the incident and dismal economic data from China and Germany. The Stoxx 600, a pan-European index, was marginally lower Tuesday afternoon as market participants kept an eye on significant interest rate decisions worldwide. The US Federal Reserve is expected to increase the interest rate by 0.5% today after its meeting.

Do you think Citibank would be left unscathed after admitting responsibility for the Flash Crash in European markets on Monday? Let us know your thoughts in the comments below.