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This is more a question out of interest, not for a specific case. If there are regional differences regarding the answer, I am more interested in Central Europe (Germany) than elsewhere. I have not made such an error myself and obviously do not want to try. ;) Google turns up little.

As shown here https://www.cbsnews.com/news/stock-trade-typo-costs-firm-225m/ , there are cases where professionals cause a huge ruckus by mere (totally obvious) typos, causing millions of damage.

Now, these days, many consumer banks offer convenient online forms to do stock trading for everybody. Obviously, at least in the German banks I am familiar with, they strictly refuse any kind of liability against anything, and that the bank running the site just forwards the transaction orders to the exchange selected by the user.

I assume that all the usual "background noise" small transactions performed by "you and me" laymen are performed fully automated in the popuplar stock exchanges (NY, Frankfurt, ...) these days. Are there any known protections against obvious typos in the stock systems themselves? Do you know of stock exchanges which flags or rejects obviously wrong buy or sell orders (e.g., selling something for 0.1% of its highest buy order, or buying something at 1000 times the current sell order)? Does the stock exchange "community" have some sort of "rules of conduct" for this?

  • Doesn't your online broker have a "preview order before submission" feature? – RonJohn Nov 21 '17 at 22:59
  • @RonJohn, sure... I assume the ordering system that poor guy from the link used had one as well. The question is not so much about user interfaces, but about the core stock exchange systems. – AnoE Nov 21 '17 at 23:35
  • Since the mistake was made by professionals, and you're asking about how the stock exchanges work, that might not be the purview of PersonalFinance.SE. "Questions about economics that are academic or have no bearing on personal finance" go on Economics.SE. – RonJohn Nov 22 '17 at 1:23
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Are there any known protections against obvious typos in the stock systems themselves? Do you know of stock exchanges which flags or rejects obviously wrong buy or sell orders (e.g., selling something for 0.1% of its highest buy order, or buying something at 1000 times the current sell order)? Does the stock exchange "community" have some sort of "rules of conduct" for this?

Yes and No.

Most Stock Exchanges for certain set of stocks have circuit breakers that are more to restrict panic selling or artificial drop in prices.

The kind of controls you are mentioning can't be put on individual trades; as stock exchanges are meant to guarantee / provide neutral ground for the price to be determined by demand / supply. There are quite a few companies that have quickly lost value and become worthless with a day or two. Hence it becomes difficult to determine if something is error by an individual or not.

Once an order is submitted to the exchange, it can't afford the to and fro to verify ... as even few seconds make a different in volatile markets.

The kind of errors reported are difficult for an individual to make as he would not own the kind of stocks and the stock broker will stop the trade from being placed.

  • Regarding the last paragraph: While I obviously can not sell stocks I don't own, what about accidently buying stocks for an outrageous price or in an outrageous amount? Could I somehow get out of that? – Philipp Nov 23 '17 at 11:54
  • @Philipp Depends on the margin your broker would offer. Or the funds available in your broker account. Can you normally buy without having funds? – Dheer Nov 23 '17 at 16:04
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    @Philipp Many a trading firm (e.g. KCG on 2012/08/01) has gone out of business due to a single incident of mistaken trades that it then desparately tried (without success) to get the exchange to retroactively cancel (or bust). Typically only mistakes on the exchange side are grounds for a reversal. I'd bet that buried in the fine print of your broker agreement are several paragraphs stating that whatever you type into their system is final and you have no recourse if you type the wrong thing. – dg99 Nov 24 '17 at 21:21
  • Accepted, thank you. Your mention of circuit breakers, while not applicable to the private investor, at least leads to some broader outlook on the topic, and your arguments of why such controls are not there sound plausible. By the way, I believe you may have meant to write "The kind of controls... can't" instead of "can". – AnoE Nov 27 '17 at 11:24
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Is there protection against typos

Yes. The errors that you describe are often referred to in the industry as 'Fat Finger' type errors, and over the past few years there has been a concerted effort across the industry both in Europe and in the United States to introduce "order based risk controls" or "pre-trade checks" that check to see if certain thresholds are exceeded before an order which is erroneous from reaching the market.

These are implemented (or can be implemented) at various stages in the process: within the broker's systems when they process customer orders; in the broker's systems when an order is transmitted to an exchange; in the exchange systems where the order is received from the broker.

Regulators also periodically review these controls with the brokerage firm that they are auditing to make sure that they work and that the thresholds that are chosen are reasonable.

In addition to all of these controls, exchanges also have procedures to "bust" trades that have executed (particularly in the US options market) that are "obviously erroneous" or "catastrophic". However the criteria are quite narrow, and there are very short timescales to request a bust (e.g. submission of the appropriate forms within 15 minutes of execution). The exchange may prefer to adjust the price of the trade rather than cancel it completely depending on the circumstances.

However, you don't want to have to rely on these risk controls. What might be a suitable control level for your broker may be too far out for your account. Where possible, you should set limits with your own broker so that they are sufficiently tight. If they have a test system (e.g. a paper trading account) you could try them out to see if they work the way you expect.

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not a chance. imagine how this could be abused. US stock exchanges rarely ever do any reversing of transactions. theres a million different ways the market can take your money. a loss from a typo is nothing special. its a mismanagement just like any other loss or profit for others.

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