Whenever a flash crash strikes some major financial asset, blame inevitably falls first on robots. Observers naturally assume that humans couldn't orchestrate such cataclysmic price dives – such as the British pound's 40-second, 9 percent plunge in early October, which earlyreports pinned on computer programs. It must be the algos, the anonymous swarms of senseless automatons that quietly rule the markets, behind these staggering market implosions.
But after some time goes by, there's almost always some sentient, warm-blooded creature who ends up taking some credit for big price jolts. In the case of the recent crash in sterling, that sentient creature was reportedly a “panicked” trader at Citi's Tokyo trading desk. The FT reports:
The UK investigation into October’s “flash crash” in sterling has focused heavily on the Japanese trading operations of Citigroup, which fired off repeated sell orders that exacerbated the pound’s fall, according to bankers and officials involved in the inquiry.
Citi’s traders are not believed to have started the slide in the currency in thin Asia trading but its Tokyo desk played a key role in sending the pound to its lowest levels in 31 years, bankers and officials said. [...]
No word on who it might have been or whether they were punished, rewarded or otherwise recognized within the bank for pushing the pound into its most violent move on record.
Citi put out a statement saying the bank “managed the situation appropriately and our systems and controls functioned throughout the period” – which, if read carefully, doesn't at all contradict the allegation of a jittery Citi trader selling the pound into oblivion.
It may well have been algos that initiated the price drop, which seemed unconnected to any major geopolitical news (save a minor story about François Hollande talking tough on Brexit). But if this theory holds, rest assured that humans haven't yet been overtaken by robots in our ability to truly fuck things up.