Osaka Securities Exchange disciplines Deutsche Bank over algo trading error

Osaka Securities Exchange disciplines Deutsche Bank over algo trading error

Deutsche Bank has been hit with an "admonition" by the Osaka Securities Exchange over a problem with a trading algorithm in June that saw sell orders worth Y16.7 trillion made by mistake.

At the start of trading on 1 June, the bank's proprietary trading unit in Japan placed sell orders on the bourse for $182 billion's worth of Nikkei 225 futures contracts. The error was quickly spotted and only 0.3% of the orders executed.

The bank later confirmed the mis-trades were caused by a proprietary automated trading system specially developed for its Asian Quantitative Trading (AQT) unit.

A change made to this system saw previously separate data files used to obtain prices integrated from country/product-specific files into one that consolidated all the information in products and markets across Asia.

The AQT unit operated the system with this new integrated data file in the evening session of 31 May on the OSE for the first time. When the same system was operated the next morning it issued excessive orders because it failed to obtain a required price.

Because the system failed to obtain a price, the value of the Nikkei 225 futures index was computed as zero, prompting it to continuously send sell orders.

After noticing the problem and sending cancel orders, the bank suspended the AQT system and has subsequently discontinued the business.

It has now also been given an admonition by the OSE for not having "a sufficient degree of control of electronic information processing system relating to securities dealers".

In a statement the banks says it "takes the matter seriously and continues to implement measures to further strengthen its systems-related processes and governance, and to prevent such an incident from reoccurring".

In January the New York Stock Exchange fined Credit Suisse Securities $150,000 for failing to control development of an algorithm that went awry and flooded the Exchange trading system with hundreds of thousands of erroneous orders.

Comments: (1)

A Finextra member
A Finextra member 12 August, 2010, 08:47Be the first to give this comment the thumbs up 0 likes

Two words: Boundary. Test.

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