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Mizuho Securities - The W1nners' Club

A fat-finger error is a keyboard input error that occurs in financial markets like the stock market or foreign currency exchange. It’s caused by stressed out traders pressing incorrect buttons on their keyboard which results in huge losses for their employer as a result.

 

An order to buy or sell may be placed that is of a much greater size than intended for example, or it may be for the wrong stock or the wrong price.

Modern automated systems within trading houses should be able to catch fat-finger errors before they affect the marketplace or such orders may get cancelled before they can be fulfilled, but back in December 2005, a botched trade made by an employee at Mizuho Securities triggered chaos on the Tokyo Stock Exchange.

An unfortunate and presumably not-much-longer-to-be-employed trader mistyped a sale instruction which was supposed to ask for the sale of one share in a company called J-Com to be sold at 610,000 yen, and instead ended up selling 610,000 shares for one yen. The sale order value was £1.6 billion in total yet the recently floated J-Com only carried a market value of little more than £50 million.

Mizuho says it realised a mistake had been made immediately after the order was placed and attempted to submit several cancel orders in the correct manner. The Tokyo Stock Exchange however, failed to process the cancellation because of a defect with its trading system.

“We have found that malfunction of our own system was the cause for preventing Mizuho Securities from cancelling the sell order,” a spokesman for the exchange said.

Mizuho was forced to buy back all the shares at a higher price and ended up with a bill for almost £200million which wiped out more than three months’ net profit for the company.

Others however, enjoyed a windfall from the debacle which was later dubbed the, “blunder plunder” in the press such as two local traders who made a combined Y2.6bn (£12.5m) in profit. Another man, Takashi Kotegawa, 27, who was officially listed as “unemployed” made a Y2bn profit. “I still haven’t decided how to spend it,” he said at the time after having previously racked up losses of up to Y100m (£500,000) a day.

Half a dozen other large Japanese and foreign investment banks also made a killing in the two-minute chaos which followed a Tokyo Stock Exchange computer operator’s lapse in concentration, but reportedly agreed to return Y16bn to Mizuho. Many smaller brokerages and investors however claimed that the bonanza was made legally and resisted pressure from the Japan Securities Dealers Association (JSDA) to pay it back.

The Tokyo Stock Exchange was ultimately ordered to pay Y10.7 billion (£73m) to Mizuho Securities in compensation for the losses it incurred following the botched trade and held that: (i) TSE was grossly negligent in leaving its defective system which did not either duly process Mizuho Securities’ cancellation or suspend the deal, and (ii) TSE was 70% at fault and Mizuho Securities was 30% at fault under Japanese comparative negligence rules.

It’s unclear what became of the fat fingered broker that made the original howler, but it’s fair to say that they would probably have had to do a few tea runs afterwards to make up for the mistake.

 

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