What is Fat Fingers?
Today, January 24th 2023, there was a sudden market movement in the early hours of trades on various large cap US stocks. A chaotic open for some stocks listed on the New York Stock Exchange as dozens of the largest companies in the US seemed to erase billions of dollars in market value for no apparent reason, leaving some investors frustrated and others clamoring for an explanation.
Trading was halted for dozens of big-cap stocks within the first 30 seconds of Tuesday’s session after they appeared to post wild swings that puzzled investors. The NYSE’s operations were back to normal less than 20 minutes later. Companies such Wells Fargo & Co. appeared to have crashed 15%, Walmart Inc. looked like it wiped out $46 billion, and AT&T Inc. seemingly swung between a 20% gain and a 21% tumble in a matter of seconds.
Below is a visual of this event:
It is still unclear if this was a human or computer error but the financial industry term for this event is called "Fat Fingers" which likely leads some people to ask, What’s a fat finger?
BBN put together a great article explaing this type of event in 2019 below is a link to the full article and a few key examples below from this article:
For the origin of the phrase, imagine someone entering a trade and pressing the button next to the one he or she meant to on the keyboard -- literally because his or her finger was too big -- and you get the idea. It’s become a colloquialism that refers generally to human error, either a literal typing error or a more figurative mistake. As many financial institutions have discovered over the years, an extra zero here or there can make a huge difference.
So how often do fat fingers strike?
Considering there are hundreds of markets around the world processing trillions of transactions at lightning speeds every day, not that often. Which is why when mistakes occur, the impact is so noticeable and embarrassing, as these examples show:
Samsung Securities Co.
Someone at Samsung Securities Co., one of South Korea’s largest brokerages, was trying to pay employees 1,000 won (88 cents) per share in dividends under a company compensation plan in April 2018, but gave them 1,000 shares instead. That totaled about $105 billion, or more than 30 times the company’s market value. Things got worse when 16 employees sold the stock, sparking a rout in the share price. In December 2015, Mizuho Securities Co. in Japan mistakenly offered to sell 610,000 shares of employment agency J-Com Co. for 1 yen each (1 cent), instead of selling one share for the market price of 610,000 yen ($5,530), something the firm blamed on a typing error. Then problems with the Tokyo Stock Exchange’s computer system prevented the brokerage from canceling the sell order -- which cost it $345 million. Japan’s Financial Services Agency subsequently ordered Mizuho to improve its compliance and systems, as well as train staff better.
Gold’s No Haven
Gold traders were rattled in June 2017 by a huge spike in volume in New York futures when trading jumped to 1.8 million ounces of gold in just a minute, an amount bigger than the gold reserves of Finland. Gold futures fell as much as 1.6 percent. One possible explanation: A mistaken trade of 18,149 lots of a futures contract, about 100 times the size of a typical trade of 18,149 ounces.
The $617 Billion Bidder
In October 2014, someone placed more than 40 erroneous orders totaling 67.8 trillion yen on Japan’s over-the-counter market -- greater than the size of Sweden’s economy at the time. The attempted transactions included a bid to buy 57 percent of Toyota Motor Corp.’s outstanding shares and other big stakes in Japanese blue chips including Honda Motor, Canon, Sony and Nomura Holdings. The orders were canceled before they were executed.
Goldman’s Options Disruption
Confusion swept across trading desks in August 2013 as prices for equity derivatives swung without reason, with some contracts trading for $26 one minute and $1 the next. The culprit was Goldman Sachs, which experienced software errors causing it to spew unintentional orders from the first moments of trading, according to a person briefed on the matter.
UBS & Capcom
UBS Group AG said its Japanese unit mistakenly ordered 3 trillion yen of Capcom Co. convertible bonds in February 2009, almost $31 billion at the time. That was 100,000 times more than it intended, according to the bank, which cited an internal system error. The trade on the Tokyo Stock Exchange’s ToSTNeT system was canceled at no cost to UBS.
The aftermath of the trading frenzy in Singapore. Banks, not criminals, cause most IT security issues, Germany’s top regulator found. This trader just got his suit seeking 163 million euros ($183 million) for a fat-finger mistake from BNP Paribas thrown out.
As always if you have any questions about this story or any other financial matter, please don't hesitate to reach out to Cliff, Mario, or Mark at The Steele Group.