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London's city dealers were stunned on Wednesday when their screens suddenly started flashing with a multi-billion dollar sale of German futures contracts.
They rubbed their eyes in disbelief when their screens showed that 130,000 German bond futures contracts, worth more than $19bn (£11.5bn), were up for sale.
The offer was the largest single trade in German futures, which are usually traded in lots of 10,000.
The value of the contracts rose on the Eurex market at Germany's Deutsche Börse (equivalent to UK's Liffe) and rivals pounced on the sale, knowing they would make a rapid profit.
In the event, some $16m (£10m) of German futures were actually sold by the junior trader.
Live, not simulated
His employers in an as yet unnamed German financial institution are now contractually obliged to pay up for the losses incurred.
Reports say the trader thought that he was using a simulated training screen when in fact it was live.
But a mistake of this magnitude begs the question: why were his bosses not aware of what he was doing, or was there a breakdown of the internal checking system?
"Lax controls"
As a London banker bluntly put it: "His employers must have extremely lax controls. A trade that size should have sent alarm bells ringing."
When stock exchanges turned electronic, it was assumed that the human errors would end, which were so easily made when traders used the open outcry system.
But automisation seems to have its own set of faults.
To illustrate the vulnerability of the electronic system, one London dealer, who asked not to be named, said the difference between working on the live screen and the simulated one could be as little as "three taps of a (keyboard) key."
Serious mistakes
Another dealer said that since the French futures exchange became automated in May, there had been three or four situations when serious mistakes had been averted at the last minute.
"But the French, like everyone else, have a system which allows you to cancel the trade," he said.
"The problem with the Frankfurt trader is that there must have been a complete break down of the internal checking system and now the company is paying the price.
"Either he thought he was playing a game, or he was a rogue who wanted to exact revenge on the company."
Dealers say there are at least four different dialogue boxes on the computer screen that a trader must override or 'ok' before a sale can go ahead.
All dealers that BBC News Online spoke to agree on one thing: There should have been several managers monitoring both the trader's screen and his actions, all the more so if he really was a junior dealer.
But Paul Cantwell, financial markets partner at IT experts Andersen Consulting, says a computer blunder of this size would have been too small for computerised safety systems to stop. After all, what's $16m to a large bank?
Mr Cantwell, who has worked on computer systems for a number of investment banks, said most trading systems have electronic safety nets which sound alerts when a major trade is made, giving dealers a chance to change their mind or allowing bosses to spot fraud or sabotage.
A deal which can incur losses of $16m would be too negligeable for anyone to spot, he claims.
Whatever losses the German trader really caused to the bank, he was responsible for dealing his own Black Wednesday.
Trainee's £10m blunder
(19 Nov 98 | The Economy)
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