RBS error caused euro spike vs Swiss franc on Monday--bank

Thu Aug 9, 2012 1:06am IST

By Gertrude Chavez-Dreyfuss
    NEW YORK, Aug 8 (Reuters) - An error by a U.S.-based trader
at RBS Securities caused a sharp and unexpected rise in the euro
against the Swiss franc on Monday, a spokesman for the bank told
Reuters.
    The transaction caused a stir because it triggered a wave of
computer-generated, or algorithmic trades from other banks. It
took place on the EBS foreign exchange platform and briefly
pushed the euro up near a five-month high against the Swiss
franc.
    The mistake occurred amid heightened concern over market
mishaps after computer trading gone awry in the U.S. stock
market nearly caused Knight Capital Group Inc to go
under. However, an RBS spokesman said the incident was contained
with quick action.
    "It was immediately spotted and immediately corrected." The
spokesman added that "there was no client money involved."
    The spokesman, however, declined to comment on whether RBS
lost or gained money on the trade.
    EBS daily charts showed that the euro surged to 
1.20928 francs from around 1.2015 within three minutes (2012 GMT
to 2015 GMT) on Monday as the algorithmic orders were executed.
    The euro soon dropped back down and was at 1.2014 francs
late on Wednesday, continuing to hold just above the Swiss
National Bank-imposed floor of 1.20 francs.
    When the incident happened, traders had speculated that it
was a faulty algorithmic system at RBS that caused the run-up in
the euro, although that turned out to be not the case.
    "RBS algo went berserk," said one UK-based trader at the
time it happened.
    Another trader, who spoke to Reuters on Monday, had the
impression that an RBS algo took euro/Swiss franc from the
1.2015 level to the 1.2050 bid, and then the U.S. algorithmic
systems took over.  
    As a result of the spike in euro/Swiss, there was a lot of
confusion as to whether the high of 1.20928 francs was valid.
That prompted EBS to issue a statement to traders late on
Monday.
    "Given the nature of the move, there was a lot of dispute as
to what the exact high was with different shops calling it
anything from 1.2020 to 1.2067," a trader said.
    EBS said that the euro spike against the Swiss franc late
Monday was valid and that the high print of 1.20928 would stand.
    It was a rare dose of activity for a pair that for months
has traded in a narrow range due to the SNB floor.
    The SNB in September set a floor of 1.20 francs against the
euro, which means that euro/Swiss franc pair cannot go below
that level without meeting stiff resistance from the central
bank. 
    The SNB set this limit in September after the euro zone
crisis prompted investors to seek a haven in the franc. A strong
franc has hurt Swiss exporters. 
    "That was quite a bit of excitement on euro/Swiss franc on
Monday," said Michael Woolfolk, senior currency strategist, at
BNY Mellon In New York. "From the price behavior of the last
several months, Monday's move was certainly noteworthy."

 (Additional reporting by Jessica Mortimer in London; Editing by
Kenneth Barry)
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