Trading error to blame for DJIA nosedive?

Dow Jones Industrial Average

This was the headline today as a trading error left the DJIA reeling. Image from Flickr.

Any trader watching the stock market today just about needed a shock to the heart as the DJIA – Dow Jones Industrial Average – plummeted almost 1,000 points because of a trading error. The DJIA nosedive, set off by a Proctor and Gamble sell-off, reverberated through the New York Stock Exchange as well. Talk about a big trading error; perhaps some Citigroup individual is about to start looking for internet loans — or a new job?

The DJIA and NYSE drops raise trading error questions

In just a few short hours today, because of a trading error, the Dow Jones Industrial Average and New York Stock Exchange both lost almost 1,000 point – nearly 10 percent of their value. Between about 2 p.m. and 3 p.m. today, the plunge triggered worries about market volatility, financial downfall and more in a market already shaky from the economic downturn. This DJIA drop was due mostly to a huge sale of Proctor & Gamble stock. So what happened?

Trading error to blame for DJIA tumble

Many financial news sources are now saying that the stock market today was reacting to one wrong letter in a trading error. A Citigroup employee erroneously entered a “b” rather than an “m” in a trading program – selling off billions (rather than millions) of Proctor & Gamble stock futures. In just two minutes, 16 billion futures were sold.

Citigroup denies DJIA trading error

Citigroup, which is launching an investigation into the DJIA trading error, has said “At this point we have no evidence that Citi was involved in any erroneous transaction.” Whether Citigroup was involved or not, the center of the Dow Jones’ plummet today was definitely the falling Proctor & Gamble stock.

Electronic trading exacerbated trading error

The trading error, in and of itself, was bad enough to send the DJIA into a tailspin. What made the NYSE and Nasdaq join in the all-out tumble, though, is a story of automated trading. While there is still plenty of stock trading that happens on the floor of the New York Stock Exchange, most trades are electronic, and many are automated. When the price of Proctor and Gamble stocks started to nosedive, automated trading programs jumped on the bandwagon. Programmed to sell when a stock hits a particular price, these programs started selling off hundreds of millions of shares.

Trading error heightens fear of DIJA fall

Though the tumbling DJIA today was the result of a trading error, it is heightening fear of another financial crisis. Riots in Greece combined with doubts about global economic recovery are leaving many investors very nervous. In the end, the trading error may have been a human error – but it is one that doesn’t do much to restore confidence in the financial industry.

Sources:

CNBC
CNBC

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