Skip to main content

Rounding Error: How Morgan Stanley Turned a $10.5 Million Trade Into A $10.5 Billion Trade

  • Author:
  • Updated:

So a few years ago, a Morgan Stanley trader placed a $10.5 billion order for shares to cover a short position. The problem is that he was only trying to buy $10.5 million of the stock. You can only imagine what this did to the markets. But, believe it or not, this kind of "rounding error" only costs you $300,000 if you are an investment bank.
Reuters explains how the mistake happened.

According to the NYSE's February report on disciplinary actions, a customer contacted Morgan Stanley on Sept. 1, 2004, to unwind part of a swap.
A Morgan Stanley affiliate was the counterparty to the swap, and had hedged its exposure by maintaining a short position in shares underlying the trade. As a portion of the swap was unwound, a Morgan Stanley trader tried to buy a basket of stocks to cover some of the firm's short position.
At about 9:32 a.m. ET that day, the trader entered an agency order on behalf of the firm to buy 100,000 units of the basket to cover a portion of the short position, the NYSE said.
But the system used to create the basket built in a multiplier of 1,000, so the trader erroneously created a basket with a value of $10.8 billion instead of $10.8 million.

A few of our usual questions: anyone know who this unnamed "trader" is? Where is he working these days? (Presumably not Morgan Stanley.)
NYSE fines Morgan Stanley for trade error that disrupted market [Reuters via]