Europe’s stock market crash sparked by Citi trader’s mistake

Citigroup said it identified the cause of the flash crash and corrected the error “within minutes.”

Jim Dyson | Getty Images News | fake images

The so-called flash crash in European markets on Monday caused several indices to drop sharply, raising alarm among investors on a day when trading was thin due to holidays around the world.

Trading was temporarily halted in several markets just before 9am London time on Monday after some European stocks fell sharply.

Nordic stocks bore the brunt, with Sweden’s OMX 30 Stockholm Stock Index falling as much as 8% at one point, before paring much of those losses to close the session down 1.9%.

Other European markets also slumped for a brief period.

US banking giant Citigroup on Monday claimed responsibility for the sudden collapse.

“On Monday, one of our traders made an error entering a transaction. Within minutes, we identified the error and corrected it,” a Citi spokesperson told CNBC.

European markets ended Monday’s session sharply lower as investors reacted to the flash crash and digested weak economic data from China and Germany.

The pan-European Stoxx 600 traded marginally lower on Tuesday afternoon as market participants monitored key interest rate decisions around the world.

What is a sudden accident?

A flash crash refers to an extremely sharp drop in an asset’s price followed by a rapid recovery on the same day.

They usually take place for a few minutes and are often caused by a business error or a so-called big toe error, when someone presses the wrong computer key to enter data.

High-frequency trading firms have been blamed for a series of flash crashes in recent years.

In January 2020, high-frequency futures trader Navinder Singh Sarao was sentenced to a year of house arrest for helping trigger a brief $1 trillion stock market crash a decade earlier.

Sarao was charged by the US Department of Justice with wire fraud, commodity fraud and tampering, as well as one count of “spoofing,” when a merchant makes thousands of purchase offers with the intent to cancel or change them immediately before execution.

The making of sudden market activity created a price boost that Sarao was able to benefit from.

The United States made the practice of “spoofing” a crime in 2010 in an effort to tighten regulations following the 2008 financial crisis.

Correction: This story has been updated to reflect that several markets were stopped at 9am London time on Monday.

Add Comment