A trader at RBS (NYSE:
) has admitted to making a fat finger trade in the EUR/CHF pair
Monday, a spokesperson for the bank told
. The error caused a series of algorithmic trades from other
traders to flood the market, sending the pair spiking for a short
period of time.
The trades which took place on the EBS foreign exchange platform
sent the currency pair to spike to levels just shy of 1.21, the
highest levels seen in a long time. The currency pair has been
rather stable, following the Swiss National Bank's (SNB) decision
to place a floor under the pair at 1.20. The decision was made to
curb capital flight from the eurozone into what are perceived as
safer Swiss banks, strengthening the franc and curbing
Switzerland's export-driven economy.
EBS daily charts showed that the euro surged to 1.20928 francs
from around 1.2015 within three minutes on Monday as the
algorithmic traders went berserk. The euro soon dropped back down
and was at 1.2014 francs later Wednesday and held the 1.20 floor.
EBS said that the euro spike against the Swiss franc was valid and
that the high print of 1.20928 would stand.
Initial reports had claimed that it was RBS's algorithms that
caused the spike. However, those reports were later proven wrong.
It turns out that it was a simple fat finger trade that caused the
spike and algos reacted to send the pair even higher. The trading
error and ensuing algorithmic trades raised further fears of
computer trading, following the trading error at Knight Capital
) that nearly bankrupted the market maker.
Knight was saved by a consortium of investors who bought up a
new offering of convertible bonds with convert prices well below
the market, indicating that Knight sold new shares on the cheap to
raise cash. At one point during the glitch, Knight held over $7
billion in stocks, new reports show, which was much higher than
their average holdings. The news of the algorithm-induced spike and
the Knight error has raised further fears over the nature of high
frequency and algorithmic trading in the market place.
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