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EDUCATIONAL ARTICLE AT CTCR Online
LOCATION: INDEX >> GUIDE >> BRAVE NEW WORLD OF SCREEN TRADING

The Brave New World of Screen Trading
By Courtney Smith

I've been trading for years. I've even been trading using a screen, rather that a phone, since the 1980's. The recent advent of computerized stock day trading has created a huge new interest in screen trading. I like the apparent speed. I don't have to call anyone who calls someone who executes the trade.
But the promise is not as good as it appears. First, I'm sure you have heard about all the outages on E*Trades site. What good is a broker if you can't trade? Sure, E*Trade is cheap, but how expensive is it if you can't get through to your broker. Sounds expensive to me.
And what if you accidently type the wrong stuff? Can you quickly call back the computer and cancel the trade. Er, nope.
Just take a look at the following article for another nightmare. I wonder what his bonus was that year!

Solly Accidentally sells $880 Mil of Futures

Salomon Trader Sold Futures By Mistakenly Leaning on Keyboard

Paris, Oct. 16 (Bloomberg) -- For one French bond futures trader, it was the worst possible nightmare -- executing an $887 million sell order in a rising market without even noticing. For every other trader it was a mystery -- why a government bond contract would tumble on an otherwise calm day.
It took almost three months, the world's biggest detective agency, and Europe's largest computer services company to find the culprit: an elbow, and an F12 key with unsuspected powers. ``It was a quiet day,'' recalls Jacob Long, a trader at Banque Nationale de Paris, who had ducked out for a late- afternoon snack. ``I was just starting to eat and suddenly the 10-year just plummets.''
It was shortly before 4:12 p.m. on July 23. Without realizing it, a Salomon Smith Barney trader in London (whose name has not been disclosed), sold 10,607 futures contracts on the Matif futures exchange in Paris. Each contract was worth 500,000 French francs ($83,600). At a stroke, the hapless trader executed transactions worth more than 10 percent of the average daily volume on the exchange at the time.

Calling In Sleuths

So says a preliminary report released Thursday by Matif, following an investigation by Cap Gemini SA, a French data processing company, and Kroll Associates, a part of Fairfield, Ohio-based Kroll-O'Gara Co. Salomon won't comment until the final report is in.
Matif officials caught the problem within minutes when the Matif called Salomon to confirm the trades. But the rest of the market didn't know this, leading to wild rumors about who was putting through such a large sell order.
A person at Salomon said the first reaction of the traders on the French government bond desk in London was to say they hadn't put through any large orders. Then when they checked the automatic trading system, they found 145 sell orders they had never heard of. Other banks had already agreed to buy almost three-quarters of the contracts Salomon was inadvertently offering.
Salomon immediately canceled the unmatched sales and asked for the matched ones to be canceled. The Matif said: Non, trop tard! Too late. That's when the investigators were called in.

'Inadvertent Operation'

The conclusion of the investigation? The trades stand, since they didn't result from faulty hardware or software. It said the trades resulted from ``the prolonged, unintentional and inadvertent operation of the `Instant Sell' key by a Salomon trader.''
That's where the elbow and the F12 come in. The trading system that Salomon was using, a so-called GLWin installed by GL Trade, which makes trading equipment for the Matif, had an F12 key that repeated the last order put through on the machine, in this case a sell order for 100 10-year bonds.
``We were on another screen and leaning against the keyboard and I guess we were trading,'' a voice recording provided by Salomon Brothers International Ltd. to an inquiry into the incident said.
The leaning was long enough to produce 145 repetitions of the order.
The person at Salomon said the traders didn't know of the F12 key's powers, which aren't mentioned in either the machine's manual or in the training course. The system had just been installed just days before the incident, on July 14, and traders normally used a function that required several clicks and asked for final approval before the order was sent off.

Biggest Mistake

The sales drove the price of the futures contract down by 1.4 percent in a few minutes. A price move that size would have potentially wiped $12.4 million off the face value of the contracts traded, although the price quickly rallied. Bonds worldwide were soaring throughout the summer, as inflation looked set to slow even further in Europe and the U.S., and as investors fled Asian markets.
French government bond traders say they see what are evidently mistaken traders go through frequently. But Matif insists that while mistakes may happen, never has there been one of this size, and never has it had a major dispute with a market participant.
Most large French banks said they don't use the trading machines, preferring to work on their phones and put trades through brokers. That's what Salomon does now. It unplugged the machines on July 23, and until it can upgrade its software and feels comfortable with it, will trade by phone through Paris futures brokers as well.
The mistake would have been avoided if GL Trade, which supplies trading systems for the Matif, had fitted Salomon with the latest software, which eliminates the F12. It was made available from July 1, and it's not clear why the older system was installed on Salomon's machines July 14. The Matif won't comment about GL Trade.

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