Citigroup, the largest bank in the United States, has admitted that one of its traders made a mistake during the so-called “flash crash” in Europe on Monday.
A “flash crash” is a rapid drop in the price of one or more assets, typically caused by a trading error.
After major stock indexes plummeted just before 8 a.m. GMT on Monday, trading was briefly halted in several markets.
Stocks in the Nordic region were hit the worst, although other European indexes also fell for a brief time.
The flash crash sent European stocks plunging on a day when trade was particularly light owing to worldwide public holidays.
One of the most impacted was Sweden’s benchmark Stockholm OMX 30 share index, which fell by 8% at one point before regaining most of its losses to close the day 1.87 per cent lower.
Human mistakes or so-called “fat finger” deals, which refer to someone inaccurately inputting the specifics of trade, can cause flash crashes.
A computer trading error at Knight Capital, a US financial services firm, caused a severe stock market disruption in August 2012, costing the company roughly $440 million.
Navinder Sarao, a former stock market trader located in the United Kingdom, was sentenced to a year of home detention in 2020 for his role in causing a brief $1 trillion US stock market crash ten years prior.
Sarao created the illusion of market demand by placing thousands of orders that he did not intend to fulfil using specially built, high-speed software. He was able to profit by cancelling or changing his bids.
The “spoofing” activities contributed to market instability, which resulted in the May 2010 “flash crash,” in which the Dow Jones index dropped over 1,000 points in a couple of minutes.
In 2010, the United States made spoofing a felony as part of a broader push to tighten rules in the aftermath of the 2008 financial crisis.