Financial firms deal with very large amounts of money, most often electronically. Instructions are incessantly sent to execute a particular payment, loan, insurance, security, derivative or financing transaction. Funds are received here and disbursed there, many millions of times each day. Over time, significant policies, procedures, systems and controls have been instituted to help ensure that both sides complete each particular financial transaction as expected. With very high regularity, this is indeed the case. However, when the processes, people or systems fail, the losses to a financial institution can be quite significant.
As an example, in late 2005 the securities arm of Japan's second largest bank, Mizuho Financial Group, took an order to sell some stock. The preceding day 2,800 shares in a small company had been issued in an initial public offering. However, instead of selling one share of this new stock at 610,000 yen as the customer wanted, the order was somehow passed on to the Tokyo Stock Exchange as an instruction to sell 610,000 shares for one yen each!! The price and quantity amounts had been reversed. Chaos ensued. Dealers and investors scurried to buy the cheaply offered stock. Meanwhile, Mizuho first tried to cancel the order and then scrambled to buy back all of the stock that mistakenly had been sold short. The total loss from this data entry error was 41.5 billion yen (or approximately $350 million).
Now the regulatory arm of the New York Stock Exchange has fined Morgan Stanley $300,000 for a failure to provide sufficient inhibitors and blocks within its trading system that led to a massive botched trade. According to Reuters,
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