European stock market crash triggered by Citi trader error

Citigroup said it identified the cause of the flash crash and fixed the error “within minutes.”

Jim Dyson | Getty Images News | Getty Images

A so-called flash crash in European markets on Monday sent several indexes plummeting, sparking alarm among investors on a day when trading was weak due to public holidays around the world.

Trading was temporarily halted in several markets just before 8 a.m. London time on Monday after some European stocks fell sharply.

Nordic stocks were the hardest hit, with Sweden’s Stockholm OMX 30 stock index dropping as much as 8% at one point, before paring much of those losses to end the session down 1.9%.

Other European markets also fell for a brief period.

US banking giant Citigroup claimed responsibility for the flash crash on Monday.

“On Monday, one of our merchants made an error while entering a transaction. Within minutes, we identified the error and corrected it,” a Citi spokesperson told CNBC.

European markets closed Monday’s session sharply lower as investors reacted to the flash crash and digested weak economic data from China and Germany.

The pan-European Stoxx 600 index traded slightly lower on Tuesday afternoon as market participants watched key interest rate decisions around the world.

What is a flash crash?

A flash crash refers to an extremely sharp drop in the price of an asset followed by a rapid recovery within the same day.

They usually take place over a few minutes and are often caused by a trading error or a so-called fat finger error – when someone presses the wrong computer key to enter data.

High frequency trading firms have been blamed for a number of flash crashes in recent years.

In January 2020, high-frequency futures trader Navinder Singh Sarao was sentenced to a year in house arrest for helping trigger a brief $1 trillion stock market crash a decade earlier.

Sarao has been indicted by the US Department of Justice, charged with wire fraud, fraud and commodity manipulation, as well as one count of ‘identity theft’ – when a trader places thousands of offers to purchase with the intention of rescinding or modifying them immediately before execution.

Manufacturing sudden activity in the market created price momentum that Sarao was able to take advantage of.

The United States made the practice of “spoofing” a crime in 2010 in an effort to tighten regulation in the wake of the 2008 financial crisis.