Citigroup Inc. London’s trading desk was the cause of a sudden crash that sent shares throughout Europe plummeting on Monday. This is a new setback for years-long efforts to improve control.
Citigroup reported that a trader from the U.S. made a mistake in “inputting transactions” after a five-minute selloff in Swedish stocks. This was following a havoc in bourses across Europe, from Paris to Warsaw. The bank claimed it found the error in “within minutes” of it being made and fixed it.
Citi’s error in transaction could be the reason for a steep drop
Nasdaq claims that there was no technical problem in its systems
This violent reaction saw the main European Index lose as much as 3 percent, wiping out 300 Billion Euros ($315 Billion) at one time. This reopened questions about how large financial institutions can prevent these errors and whether there are sufficient safeguards for markets.
Oliver Scharping, Bantleon’s portfolio manager, stated that “the reality is that large parts of trading, despite all the fancy controls systems, are manual and human-driven. So the ‘fat fingers’ isn’t just a metaphor.”
Citigroup sees the incident as a reminder of the work that must be done by Chief Executive Officer Jane Fraser to restore the bank’s reputation. Two years ago, the bank’s dysfunction was exposed when employees sent nearly $1 billion to Revlon Inc. creditors. This error led to a long and embarrassing court battle to recover the funds.
According to a source familiar with the matter, Citigroup is currently in discussions with regulators and exchanges regarding Monday’s incident. The person who requested anonymity to discuss non-public information did not want to be identified.
The OMX Stockholm 30 Index ended 1.9% lower than the previous day, which is roughly in line to a fall in European markets. The index had dropped as low as 8% in five minutes, before recovering the majority of its losses soon after.
Scharping stated that lower volatility in Nordic markets likely played a part, along with the U.K. bank holiday, which left European stock market liquidity about 25% less than usual.
He said that the trade of yesterday was one of the largest ‘flash crash’ our team has ever seen, as it hit a large liquidity hole.
This incident occurred days after the U.S. Office of the Comptroller of the Currency lifted the 10-year-old consent agreement with Citigroup. It was a victory for Fraser who has dedicated thousands of employees to improving control and risk management systems. Two other consent orders from the OCC or the Federal Reserve, dating back to 2020, are still being addressed by the bank.
Citigroup could suffer reputational and financial damage as a result of the error. However, Nasdaq stated that it would not cancel trades on Nordic markets. According to a Nasdaq Stockholm spokesperson, the slump was not due to technical problems.
David Augustsson, a spokesperson for Nasdaq Stockholm, stated that “our first priority was to eliminate technical issues in the systems and our second priority, was to exclude an exterior attack on our system.” “It is clear to us, that this market move is caused by a substantial transaction made in part by a market participant.”
