de | cn | ru

Market News

Major fat fingers and flash crashes

Jul 18 2017
By
Jonathan Smith

In the light of the more recent flash crashes of the silver and gold, the ethereum and the major plunge of the GBP in the autumn of 2016, we decided to have a look at the flash crashes from recent years, caused by random “fat fingers”, or by deliberate actions. Some had a major impact on the markets, while others were plain stupid.

 

Deliberate and impactful

 

The great flash crash of 2010

It took regulators quite a while to figure out what caused the flash crash of May 6, 2010, when the  Dow Jones Industrial Average fell by approximately 600 points in a five-minute span. The ensuing panic wiped out about $1 trillion from the collective value of US stocks, but they regained their value.

 

Initially it was thought that it was a mere “fat finger” mistake, but an investigation that took years, eventually led to British trader Navinder Sarao. He was accused of wire fraud and spoofing. Allegedly he caused the flash crash by manipulating the market for E-Mini S&P 500 futures contracts, or "E-Minis," on the CME. He made tens of millions of dollars by manipulating the markets through a trading algorithm he programmed himself.

 

In fact, some claim that the big flash crash of May 2010 was the start of Sarao's spoofing career, which continued for years. Others contest the significance of his role in the flash crash.

 

In April 2015, nearly five years after the incident, the U.S. Department of Justice laid "22 criminal counts, including fraud and market manipulation" against Sarao that carried a maximum sentence of 380 years. In the autumn of 2016 Sarao pleaded guilty and was extradited to the US, but has not been sentenced as of the summer of 2017.

 

 

The Swiss franc drama of January 15, 2015

The decision of the Swiss National Bank (SNB) to unpeg the Swiss franc from the euro, without any warning and the flash crash that caused the EUR/CHF to drop 40% in seconds resulted in total chaos on the markets.

 

Unlike other crashes, this one had a very significant impact on the forex industry itself. The ensuing havoc caused a large number of client accounts go into a negative balance. This cost many forex brokers millions of dollars. As a result Alpari UK closed down, after the currency market move "caused by the SNB's unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity." The major forex broker FXCM got into such deep trouble, that had to urgently borrow $300 million from the investment firm Leucadia National Corp. It still has not repaid the loan in full.

 

The Swiss franc drama caused losses not only to forex traders and brokers, but to major banks too. According to reports, UK's Barclay's has lost millions, while the SNB reported a H1 2015 loss of 50 billion francs.

 

 

Fat fingers or bad circumstances

 

The GBP Flash crash

 

The 9% dive of the GBP against the US Dollar in October 2016 was caused by a combination of factors. The official report on the crash that happened in the Asian markets trading hours found that it was the result of a combination of inexperienced traders, algorithmic trading and complex trading positions.

 

According to the Bank for International Settlements, another factor that contributed to the crash was the woozy position of the GBP in the months following the Brexit vote. Even though other factors such as “fat finger” errors and potential market abuse could not be ruled out, there was not enough hard data to support the claims.

 

 

"Mr Perkins poses an extreme risk to the market when drunk"

 

On June 29, 2009 Steve Perkins, a senior oil trader with the London-based PVM Oil Futures, traded 7 million barrels of oil, worth approximately US$520 million, in a drunken blackout after a weekend binge. His actions drove the oil price to an eight-month high and cost PVM Oil Futures a loss of $10 million.

 

An investigation found that Perkins, who was a broker in Brent crude on the international commodities futures market, ICE, which meant he was only supposed to execute trades on behalf of clients, traded on his own laptop for hours through the night. Meanwhile, he had sent his employer a notice that he was not able to come to work because a relative was unwell.

 

When confronted, Perkins initially said he was trading on behalf of a client, but when he failed to put his employer in touch with the client, he eventually admitted he was drunk. He was promptly fired. The Financial Conduct Authority (then still FSA) fined Perkins £72,000 and banned him from trading for five years, noting that "Mr Perkins poses an extreme risk to the market when drunk".

 

Perkins joined an alcoholics rehabilitation program and a year later was hired by the Swiss company Starsupply Renewables. In a statement the company said he was a "good man who did a stupid thing".

 

 

Japanese fat finger

 

On October 1, 2014, an unidentified Japanese dealer mistakenly placed an order worth $600 billion on huge volumes of shares in blue-chip stocks such as Toyota Motors, Honda and Nomura. The biggest order was for 1.96 billion shares of Toyota Motors for 12.68 trillion yen. Fortunately, the mistake was swiftly fixed and did not cause turmoil on the markets. Nor it affected the company that had mistakenly placed the orders.

 

Knight Capital Group

 

Not so lucky was the financial services firm Knight Capital Group, when on August 1, 2012 a newly installed automated trading software sent millions of buy and sell orders, resulting in 4 million executions in 154 stocks for more than 397 million shares in approximately 45 minutes. The glitch caused major disruption on the markets. Knight Capital lost $440 million, its stocks collapsed and the company was later sold.

 

 

TAGS: flash crash  fat finger 
Forex
Broker Country Regulation Platform Min Deposit Review
Cyprus, UK, Mauritius CySec, FCA, FSC MT4, MT5, Web $10 Review Website
UK FCA MT4, Web,
ForexTrader,
Tradable
$50 Review Website
Australia, Cyprus ASIC, CySEC MT4, MT5, Iress $100 Review Website
Cyprus, Australia CySec, ASIC MT4, MT5 $5 Review Website
UK, Australia, South Africa FCA, ASIC, FSCA MT4, Trading
Station,
NinjaTrader
$50 Review Website
UK, Cyprus, UAE, South Africa FCA, CySEC, DFSA, FSB MT4, MT5, FxPro
Markets,
cTrader
$100 Review Website
Cyprus CySEC MT4, MT5, Web $1 Review Website
Belize IFSC MT4, MT5 $100 Review Website
Cyprus, UK, South Africa, UAE CySec, FCA, FSCA, DFSA MT4, MT5, Web $5 Review Website
Cyprus, UK CySEC, FCA MT4, MT5 $1 Review Website
UK FCA MT5 $5 Review Website
UK FCA MT4, Web, MT4
for Mac
$100 Review Website

More Forex Market News

UK's FCA might ban credit card deposits with online forex and CFD brokers

Jan 20 2020 18:21:17

After earlier this month the UK Gambling Commission (UKGC) announced that after April 14th 2020 clients of gaming websites will no longer be able to use credit cards to fund their bets, some experts and analysts say it is high time that the UK's Financial Conduct Authority (FCA) do the same, as quit... Read more

The CNMV remains vigilant, blacklists Forbslab and eTrader247

Jan 20 2020 14:32:21

 Unregulated forex brokers Forbslab and eTrader247, along with several other alleged scammers, have been the latest additions to the warning list of Spanish financial watchdog – the Comision Nacional del Mercado de Valores (CNMV). Read more

Crypto scammer Patrick McDonnell sentenced to 33 months of imprisonment

Jan 17 2020 14:54:19

Patrick McDonnell, CEO of Coin Drop Markets, was sentenced to 33 months in federal prison and also ordered to pay $224,350 in restitution, after pleading guilty to cryptocurrency fraud last year. The Federal court in Brooklyn issued the sentence on Thursday. Read more

UK's FCA expects up to 10% decline of profits in the forex industry

Jan 16 2020 17:47:56

The Financial Conduct Authority (FCA) expects that the new regulations imposed on the retail forex and CFD brokers in the UK will lead to an overall reduction of their profits of between 6% and 10% - a decline which by the year 2021 may reach between 38.5 million GBP and 55.3 million GBP. Read more

UK’s FCA updates its warning list with A.B.Capitals and LincolnFX

Jan 16 2020 16:48:27

  Another bunch of brokers have made it to the warning list of UK’s Financial Conduct Authority since the beginning of 2020. We’ll focus on two of them - A.B. Read more

Coinbase will pay $1 mln to victims of the Cryptsy hack attack

Jan 15 2020 18:06:18

Coinbase, the San Francisco based crypto exchange, has agreed to pay 962500 USD as a compensation  to victims of the Cryptsy hacker attack, in an out of court settlement, court papers reveal. Read more

Clients of FXFINPRO to be invited to file compensation claims

Jan 15 2020 14:32:03

  Clients of now-defunct forex brokerage FXFINPRO will be invited to submit compensation applications by the Investor Compensation Fund (ICF), the Cyprus Securities Exchange Commission (CySEC) announced on Monday. Read more

Australians were scammed for $42.5 mln in 2019 alone

Jan 14 2020 14:08:08

Australians have lost some 61.61 mln AUD (42.5 mln USD) in investment scams in 2019 alone, the latest data of the Australian Competition and Consumer Commission (ACCC) reveals. Read more

Chinese investors lost an average of $20k to crypto scams in 2019

Jan 14 2020 13:06:44

  Chinese crypto investors who have been scammed in 2019 reportedly lost nearly $20k each (134,522 yuan), according to the 2019 Cyber Fraud Trend Research Report, published previous week. Read more

Cobinhood suspends operations amidst exit scam rumors

Jan 13 2020 15:53:10

  Crypto exchange Cobinhood announced they’re shutting down temporarily last week to audit all accounts' balances. However, many suspect that the people behind the operation are actually pulling an exit scam. Read more

de | cn | ru