IP: Trader's error causes multi million-dollar loss: [risks] Risks Digest 21.81

[David Farber <dave@farber.net>]

> Date: Tue, 04 Dec 2001 08:19:18 -0800
> From: "George C. Kaplan" <gckaplan@ack.berkeley.edu>
> Subject: Trader's error causes multi million-dollar loss
>
> An article in the *Wall Street Journal* on 3 Dec 2001 describes how a simple
> data-entry error could end up costing UBS Warburg up to $100 million:
>
>   Dentsu Inc., one of the world's biggest advertising companies, was making
>   its trading debut Friday on the Tokyo Stock Exchange after completing one
>   of the year's biggest initial public offerings -- a deal arranged by UBS
>   Warburg, a unit of Switzerland's UBS AG, ...
>
>   Before the Tokyo market opened Friday, a UBS Warburg trader entered what
>   was intended to be an order to sell 16 Dentsu shares at 610,000 yen
>   ($4,924.53) each or above.  Instead, the trader keyed in an order to sell
>   610,000 Dentsu shares at 16 yen apiece ...
>
> The order was canceled by 9:02 AM, but not before 64,915 shares, almost half
> of the 135,000 shares in the IPO, had been sold.  The price of Dentsu
> shares, which had been bid up to 600,00 yen before the market opened, fell
> to 405,000 yen.  Now, UBS Warburg is obligated to deliver the shares it
> sold, and will have to buy them on the open market.
>
> The article doesn't say anything about sanity checks in UBS's trading
> software.  These have their own risks, of course, but you'd think that an
> error of 4 orders of magnitude in the selling price would at least merit an
> "Are you sure?" before the order went through.
>
> Once again, we see how computers let people make really big mistakes quickly.
>
> George C. Kaplan. Communication & Network Services, University of California
>   at Berkeley  1-510-643-0496  gckaplan@ack.berkeley.edu

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