UBS makes a $31 billion order error
Feb 25th 2009 8:30AM
Updated Dec 4th 2009 10:39AM
UBS (UBS) blames a computer glitch for placing off-hour buy and sell orders of Capcom Co. (CCOEF) convertible bonds worth $31 billion (3 trillion yen) and due to mature on March 31. That was 100,000 times more than it intended. The trade was canceled at no cost to UBS by the Tokyo Stock Exchange, according to Bloomberg. Trading of the security was halted at 12:07 p.m. Tokyo time when the error was reported.
UBS issued a statement apologizing for the error and "any inconvenience caused to market participants." While there was no comment from Capcom, trading volume for convertible bonds was small, so no major problem was expected. The total bond sale in December 2001 had been just 15 billion yen.
Satoshi Mimura, a spokesperson for the Tokyo Stock Exchange told Bloomberg, "The trade in question was a cross transaction, so its impact should be limited."
Computer glitches happen periodically and, as it has done in the past, the Tokyo Stock Exchange suspended trading. Other recent glitches included the need to suspend trades on Topix futures for more than half a day in July 2008, which was just five months after an unrelated computer problem also halted trading of the contracts.
In Dec. 2005, a system fault prevented Mizuho Securities Co. from canceling erroneous trades for 10 minutes. That glitch cost the brokerage firm 40.5 billion yen. At that time the computer system didn't respond to Mizuho's attempts to cancel the order that had been placed. The order mistakenly placed was to sell 610,000 J-Com shares, or 42 times the amount of stock outstanding, for as little as 1 yen each. Mizuho had intended to sell one share for 610,000 yen.
In 2001, UBS Warburg apologized after an inputting error on an order to sell shares in Dentsu Inc. drove down the Japanese advertising agency's shares on their debut.
While electronic trading has improved the execution of trades, it's certainly has added new, and more expensive ways, to make trading errors. This type of trading error even has a nick name -- fat finger trading mistakes.
Lita Epstein has written more than 25 books including Trading for Dummies.