London, UK – British financial regulators have imposed a significant fine on Citigroup, totaling £61.7 million, following a massive $444 billion “fat finger” error that triggered a $1.4 billion sell-off in European equities markets.
The incident occurred when a Citi trader, intending to sell a basket of equities valued at $58 million, mistakenly entered an erroneous value of $444 billion, an amount comparable to Denmark’s GDP. Although Citi’s trading system blocked $225 billion of the order, it failed to prevent the remaining $189 billion from being processed by a trading algorithm. This algorithm then executed portions of the erroneous order throughout the trading day.
The result was the sale of $1.4 billion worth of equities across European exchanges, leading to a brief but significant drop in several European indices. The trader eventually canceled the order, but the damage had already been done.
The Financial Conduct Authority (FCA) investigated the incident, revealing deficiencies in Citi’s trading control framework. The investigation found that while some controls operated as expected, crucial primary controls were either missing or inadequate. Notably, there was no hard block to completely reject such a large erroneous order, allowing it to partially reach the market.
Furthermore, the investigation highlighted that the trader could manually override a pop-up alert without fully reviewing its content, and the firm’s real-time monitoring system was too slow to effectively manage the situation.
Steve Smart, Joint Executive Director of Enforcement and Market Oversight at the FCA, stated, “The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to stop errors like this occurring. These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to look at their own controls and ensure that they are appropriate given the speed and complexity of financial markets.”
Citi received a £27.8 million penalty from the FCA, which included a 30% discount for not disputing the findings. Additionally, the Prudential Regulatory Authority (PRA) imposed a separate fine of £33.88 million following its own investigation.