Fat fingers on the ASX July 30, 2008
Posted by James Webster in : finance , trackback
A ‘fat finger error’ occurred at the ASX on Wednesday. A broker submitted sell orders for QBE within a range of 0.1-0.2c per share, when the prevailing market price was in fact $22.85. This was an error of several orders of magnitude. Needless to say, day traders and other market participants jumped on the opportunity immediately. Fortunately the ASX quickly recognised the error, suspended trading in the shares and cancelled the original and all subsequent trades.
As I am currently reading Michael Simmon’s Securities Operations, which whilst primarily focusing on post-trade reconciliation and settlement, has been reinforcing to me the need for validation at all steps of the process. I am also starting to work in the area of trade capture at the moment. So I’m wondering why more trade ticket entry screens don’t perform simple validations to prevent errors of this sort, given that this does seem to happen somewhat regularly. I may be wrong but even in a crashing market would you really want an order to sell at less than 1% of the current market price without your screen quickly asking you to confirm? If this QBE trade was issued as an agency order at the broker’s discretion it also raises issues of best execution standards; it would be quite an embarrassing conversation to have with your client about the quality of your service and why they should continue to keep it.
I know I have some friends and former colleagues now working at trading systems vendors, if they are reading perhaps they can shed some light on the issue?
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My team is responsible for TCM (http://www.nysetransacttools.com/tcm/), an order-flow messaging product. One of our significant efforts for the last year and on-going is on our DMA (direct market access) / Risk management product that puts configurable / programmable filters in the message flow. There are many uses for this, but one of them is fat fingering. It doesn’t come as early as the trade entry UI, obviously, but at least the order wouldn’t hit the market.
Cheers Mike, thought you might come through with the goods. Now I am just waiting for one of my contacts at Orc to come through with their story!