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The Times December 09, 2005

Fat fingered typing costs a trader’s bosses £128m
From Leo Lewis in Tokyo

CLUMSY typing cost a Japanese bank at least £128 million and staff their Christmas bonuses yesterday, after a trader mistakenly sold 600,000 more shares than he should have.

The trader at Mizuho Securities, who has not been named, fell foul of what is known in financial circles as “fat finger syndrome” where a dealer types incorrect details into his computer. He wanted to sell one share in a new telecoms company called J Com, for 600,000 yen (about £3,000).

Unfortunately, the order went through as a sale of 600,000 shares at 1 yen each.

That error alone would have been bad enough, but the consequences were much worse because 600,000 shares represents more than 40 times the total number issued by the company, and the vast discrepancy effectively created a technical shortage of shares, worth about £1.6 billion.

Despite Mizuho’s attempts to rectify the mistake, some estimates put the possible financial damage to the firm at about 60 billion yen — a figure that may be big enough to destabilise the securities arm of what is one of the four largest financial groups in the world.

Makoto Fukuda, the company’s president, said that it expected a loss of 27 billion yen, which could rise above 30 billion but would not endanger its financial health.

The slip caused immediate shockwaves in the Tokyo market as traders tried to guess which firm had made the mistake. Fearing the impact, traders sold shares in all Japanese broking houses and the sell-off led to the value of the Nikkei 225 falling 2 per cent. It was only later that Mizuho admitted that one of its traders had made the error.

The order slipped through at about 9.30am and, one CLSA broker explained, “until the culprit firm was named around tea time, investors spent the day dumping the shares of every listed brokerage in Japan, in case it had been them”.

If Mizuho has to accept the loss, it may have to sell many of its stockholdings to raise the money, creating further pressure on Japanese stocks.

The incident centred on the flotation on the Tokyo stock exchange Mothers Index of J Com, a small telecoms outsourcing and recruitment firm that was expected to be valued at £60 million. Investors who applied for shares in the float were each allocated 15 shares worth 610,000 yen each and within minutes of the market opening, one of Mizuho’s clients wanted to sell a single share at 600,000 yen.

Unfortunately, the order went through incorrectly and most of the trade was executed.

It is thought that Mizuho, once it realised its mistake, sought to buy back 550,000 shares from itself in a desperate effort to limit the damage, which is expected to run into billions of yen because J-Com’s share price soared, making the repurchase more costly.

A trader at a rival firm said: “Someone in that office had to pick up the phone to his boss and authorise the use of billions of company dollars to correct a stupendous cock-up. Not a call you want to be making a couple of weeks before Christmas bonuses.”

Mizuho said it was discussing with the Tokyo stock exchange how to deal with the matter. There is a chance that Mizuho will persuade the Tokyo exchange, which is under pressure for allowing the obviously mistaken trade to go ahead, to have it cancelled.

As if the hapless trader was not unpopular enough, the firm also cancelled its end-of-year party, scheduled for last night.

FALLIBLE MASTERS OF THE UNIVERSE

February 2005: A broker tried to sell 15,000 shares in music publisher EMI at 280¼p but instead placed an order for 15 million in a transaction worth £41.5 million

April 2003: A trader accidentally bought 500,000 shares in GlaxoSmithKline, the pharmaceuticals group, at £13.00 each when the market price was 70p less

November 2002: A market maker confused the price of Ryanair shares in euros and sterling, sending the London quote up more than 61 per cent, from 404.5p to 653.7p

October 2002: A keyboard error at Eurex, the world’s largest derivatives market, halted trade for three hours and caused its index to fall 500 points after an unidentified London trader entered the wrong price during a futures transaction

September 2002: A Eurex trader intended to sell one futures contract when the DAX, Germany’s index of leading shares, reached 5,180. Instead he sold 5,180 contracts, sending the market into a free fall. Five hours later the exchange announced the cancellation of a raft of other trades

December 2001: A trader at UBS Warburg, the Swiss investment bank, lost £71 million in seconds while trying to sell 16 shares in Japanese advertising giant Dentsu at 600,000 yen each. He sold 610,000 shares at six yen each

May 2001: A trader at Lehman Brothers mistyped a trade and wiped £30 billion off the stock market. He wanted to sell £3 million of stock but typed too many zeros and sold £300 million. The bank suffered a £20,000 fine for his clumsiness

November 1999: A dealer put his elbow on the keyboard and inadvertently placed 600 trades in 16,000 of the Premier Oil’s shares at 19p, worth more than £1.8 million