Citigroup behind error that wiped out $315 billion from European markets

Citigroup’s London trading desk was a behind a flash crash that sent shares across Europe tumbling on Monday, dealing a fresh setback to the bank’s yearslong efforts to improve controls.

A trader at the US firm made a mistake “inputting a transaction,” Citigroup said late last night, after a knee-jerk selloff in Swedish stocks in five minutes wreaked havoc in bourses from Paris to Warsaw. The bank said it identified the error “within minutes” and corrected it.

The violent reaction saw the main European index lose as much as 3%, wiping out 300 billion euros ($315 billion) at one point. It revived questions how large financial firms can prevent such errors, and whether markets have sufficient safeguards in place.

“The reality is that, despite all the fancy control systems, large parts of trading are still manual and human-driven, meaning the ‘fat finger’ isn’t just a metaphor,” said Oliver Scharping, a portfolio manager at Bantleon.

For Citigroup, the incident is a reminder of the work to be done as Chief Executive Officer Jane Fraser campaigns to repair the bank’s reputation. The firm’s dysfunction was on display two years ago, when employees mistakenly sent almost $1 billion to Revlon creditors, an error that resulted in a lengthy and embarrassing public court battle to recover the funds.

Citigroup is in talks with regulators and exchanges about Monday’s incident, according to a person familiar with the matter who asked not to be named discussing non-public information.

Slippery Slope

The OMX Stockholm 30 Index closed 1.9% lower, roughly in line with a drop in European markets. It had slumped as much as 8% in just five minutes before recovering most of the losses shortly after.

Scharping said lower volatility breaks in Nordic markets probably played a role, as did the bank holiday in the UK, which left European stock markets with about a quarter less liquidity than normal.

“The trade yesterday caused one of the larger ‘flash crashes’ our team can remember as it did hit a rather large liquidity hole,” he said.

The incident came days after the U.S. Office of the Comptroller of the Currency lifted a 10-year-old consent order with Citigroup in a victory for Fraser, who’s dedicated thousands of employees to improving risk and controls systems. The bank is still working to address two other consent orders with the OCC and the Federal Reserve stemming from 2020.

The error could potentially cause monetary and reputational damage to Citigroup as Nasdaq said it will not cancel any trades made on the Nordic markets. A spokesman for Nasdaq Stockholm had said the short-lived slump wasn’t a technical glitch on its part.

“Our first priority was to exclude technical issues in our systems, and our second priority was to exclude an external attack on our systems,” said David Augustsson, a spokesman for Nasdaq Stockholm. “It is very clear to us that the cause of this move in the market is a very substantial transaction made by a market participant.”