Citigroup to Pay a £61.7 Million Fine over a $444 Billion Fat Finger Error
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Financial Conduct Authority (FCA) recently fined Citigroup over a $444 billion fat finger error that resulted in a $1.4 billion sell-off of equities in European markets. The company was ordered to pay ₤61.7 million for the damage it caused.
What Happened?
According to the FCA’s investigation, a Citi trader intended to sell a basket of equities with a total value of $58 million. However, the trader accidentally entered the wrong amount, costing a total $444 billion.
The value is equal to the GDP of Denmark, and while Citi’s trading system blocked a portion of the amount — $225 of the basket progressing — the remaining $189 billion was processed and sent into the algorithm.
The algorithm was supposed to place portions of the total order to be sold in the market throughout the rest of the day. A total of $1.4 billion of equities was sold across various European exchanges before the order was canceled by the trader.
Furthermore, the incident happened at the same time as a material short-term drop took place in some European indices, which laster for only a few minutes.
Looking into the incident, the FCA found that most of Citi’s trading control framework operated as it was supposed to. However, there were also some primary controls that were either absent or deficient, which could be the reason why such a massive error was not detected by the system.
The regulator said that there was no hard block that was supposed to be in place, which is why a large erroneous basket of equities was not fully rejected. If such a system was in place, none of it would have reached the market.
Citi’s Flawed Design Enabled The Error
The FCA blames the issue on the error and the poor design, which allowed the trader to manually override a pop-up alert without having to scroll down and check all the alerts contained within.
Furthermore, the FCA also noted that the company’s real-time monitoring was not effective, making it too slow to react and escalate internal alerts that should have gone off in the event of the fat finger trade.
The regulator’s joint executive director of enforcement and market oversight, Steve Smart, stated that the FCA expects companies engaged in trading activities to have effective systems and controls in place so that errors and incidents such as this one would be prevented.
“These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to look at their own controls and ensure that they are appropriate given the speed and complexity of financial markets,” Smart added.
The incident was also investigated by the Prudential Regulatory Authority, which also fined the company. While the FCA’s initial fine of £27.8 million qualified for a 30% discount due to Citi not disputing the findings, the PRA added another £33.88 million, making the total penalty £61.7 million.
