Possible Trading Errors in London

Sudden swings in HSBC and Diageo shares spark concern, raise questions about exchange stability in computer age.

Shares in two of Europe’s biggest companies veered more than 6 percent from their market price earlier today, swings that in one case affected levels in the benchmark gauge for European equities before it was reversed.

HSBC Holdings Plc jumped 9.9 percent to 688 pence around 11:20 a.m. in London before falling back to 629 pence a few minutes later. The increase was mirrored in the Stoxx Europe 600 Index, which momentarily pared its losses by 0.5 percent during the period. About two hours earlier, Diageo, the world’s biggest distiller, dipped 11 percent to 1,691 before erasing the loss over a five-minute stretch.

“Looking at the speed of the correction in the shares, it’s pretty clear that it was a fat-finger trade,” Alastair McCaig, market analyst at IG in London, said. “There will be costs associated with that, so someone is in a fair amount of hot water.”

The anomalies in London trading follow a series of mishaps in the U.S., which critics have highlighted as evidence that exchanges have been destabilized by computers. Last year, Nasdaq OMX Group Inc. closed its U.S. options exchange more than five hours early because of a technical error. In October, malfunctions interrupted data transmission at the International Securities Exchange.

The increase in HSBC shares caused the FTSE 100 Index to fluctuate. The benchmark gauge for U.K. equities rose as much 0.5 percent to 6,573.92 around 11:22 a.m. before falling to 6,524.52 at 11:25 a.m. HSBC has the third-biggest weighting in the Stoxx 600 and the biggest one in the U.K. gauge.

The moves in HSBC and Diageo were large enough to trigger trading halts designed to prevent excessive volatility. U.S. exchanges introduced circuit breakers in June 2010 on individual securities that temporarily pause stocks across markets when shares move 10 percent in five minutes. The rule, since modified, was implemented in response to the May 2010 crash that erased $862 billion in equity value in 20 minutes.

An LSE spokesperson declined to comment on the moves in HSBC and Diageo. Donal McCarthy, a spokesman for HSBC in London, declined to comment. Camille Dor, a spokeswoman for Diageo, was not immediately available for comment.

“Both cases bear the traditional hallmarks of a ‘fat finger’, as the stock prices quickly corrected themselves,” Saul Taylor, vice president and equity trader at ConvergEx Ltd. In London, said in an interview today. “It is highly likely that a trader, with direct-market access to the LSE, released large orders at market, in error.”

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