Another Day, Another Trading Glitch: RBS Admits Responsibility in EUR/CHF Spike

A trader at RBS RBS has admitted to making a fat finger trade in the EUR/CHF pair Monday, a spokesperson for the bank told Reuters. The error caused a series of algorithmic trades from other traders to flood the market, sending the pair spiking for a short period of time.

The trades which took place on the EBS foreign exchange platform sent the currency pair to spike to levels just shy of 1.21, the highest levels seen in a long time. The currency pair has been rather stable, following the Swiss National Bank's (SNB) decision to place a floor under the pair at 1.20. The decision was made to curb capital flight from the eurozone into what are perceived as safer Swiss banks, strengthening the franc and curbing Switzerland's export-driven economy.

EBS daily charts showed that the euro surged to 1.20928 francs from around 1.2015 within three minutes on Monday as the algorithmic traders went berserk. The euro soon dropped back down and was at 1.2014 francs later Wednesday and held the 1.20 floor. EBS said that the euro spike against the Swiss franc was valid and that the high print of 1.20928 would stand.

Initial reports had claimed that it was RBS's algorithms that caused the spike. However, those reports were later proven wrong. It turns out that it was a simple fat finger trade that caused the spike and algos reacted to send the pair even higher. The trading error and ensuing algorithmic trades raised further fears of computer trading, following the trading error at Knight Capital Group KCG that nearly bankrupted the market maker.

Knight was saved by a consortium of investors who bought up a new offering of convertible bonds with convert prices well below the market, indicating that Knight sold new shares on the cheap to raise cash. At one point during the glitch, Knight held over $7 billion in stocks, new reports show, which was much higher than their average holdings. The news of the algorithm-induced spike and the Knight error has raised further fears over the nature of high frequency and algorithmic trading in the market place.