Fat Finger Error?

One explanation for a part of yesterday's Dow plunge, at one point by as much as nearly 1,000 points, is that it was a fat finger error.

Joe Weisenthal at Business Insider seems to be buying this tale:

Reports from CNBC and our own sources suggest that it was a Citigroup (C) trader that accidentally entered a sell BILLION-size sell trade, when they meant to do million.

To understand how absurd this explanation is, consider this:  It's possible that Matt Taibbi may not even fall for it.

Every financial institution in the world has software designed to catch fat finger errors. Trading software, in particular, has super redundancies to catch such errors. There are protection redundancies at the firm level, at the broker level, at the exchange level. Even your lowly neighborhood ATM machine would not  allow such an error. Don't think so?

Try this experiment. Go to your local ATM and, using only your thumbs (fat fingers) for full dramatic impact, try and withdraw a billion dollars. Go ahead do it now. If you are unconvinced, try a few more ATMs. Try using your big toes. Keep at this until you are convinced programs have been built into software protecting against money and fat finger errors

Your little ATM experiment failed to produce a billion dollars for you because of at least two checks. 1.It exceeded daily withdrawal limits on your account. 2. It exceeded the balance in your account.

These same kind of checks (and many more) are placed on trading activities, but at even more points along the way.

A fat finger error this wasn't.

It could very well have been a bunch of stop losses under the market, afterall the market had been going up, and it's entirely possible many had stop losses just under the market in an attempt to protect profits.

It could have been market makers stepping away in the panic. Remember, television was carrying live pictures of the riots in Greece.

It could have been a bunch of sell programs kicking in simultaneously, afterall all these quants use basically the same algorithms.

There are many, many possibilities as to what happen. The trading was very fast and the move was unusual compared to market crashes of the past, but a simple fat finger error would appear to be very unlikely.