Wednesday, December 7, 2016
Citi is being investigated for its role in the pound's 'flash crash'
Citi's Japanese trading operation is being closely investigated by the Bank of England for its role in October's "flash crash" of the pound, the Financial Times reports.
The report claims that while Citi did not start the crash, its Japanese trading operation made things worse by placing a large number of sell orders after the initial fall began, citing people with knowledge of the investigation.
The problem reportedly stemmed from one trader. The paper quotes an unnamed source as saying the trader in question "panicked" when the pound started to fall.
Sterling plunged to a three-decade low in Asian trade in early October, falling as much as 6% in just 2 minutes. While the motivation for the initial fall is not clear, traders said at the time that thin trading volumes meant the impact was outsized and created a downward spiral as the slump triggered more algorithms to sell. The FT says that the Citi trader in question fired off multiple sell orders, sending the pound spiralling.
Citi told Business Insider in a statement: "Sterling fell sharply following a news event just after midnight UK time, when the GBP spot foreign exchange market was extremely illiquid.
"Citi managed the situation appropriately and our systems and controls functioned throughout the period."
The Bank of England has said possible triggers for the initial crash include: "A large trade executed erroneously (a so-called “fat finger” error), the use of a poorly calibrated execution algorithm, unsophisticated retail trading, or a deliberate attempt to move the price lower."
It added that it was investigating the possibility of "idiosyncratic actions of individual market participants in driving the subsequent price falls." Citi was not named in the report.