Small Trader Suffers Loss Of Rs. 67 Crore Due To Glitch In Broker's Terminal

Syed Shah is the perfect example of a quintessential punter.

Like the rest of us, he is also constantly scouring for opportunities to make a quick buck from the markets.

Normally, he restricts his punting to stocks and currencies.

However, when he saw that crude oil prices had plunged to an unbelievable price of one penny on the fateful day of 20th April, his eyes lit up and he couldn't believe his luck.

"What can one lose by buying something for one penny. The risk-reward is perfect," he thought to himself, a big smile on his face.

In a flash, he grabbed 212 futures contracts on West Texas Intermediate for a throwaway price of a penny each.

The margin money for the trade was a petty $30.

Unfortunately, Syed Shah had not realized that at that precise moment, crude oil prices were actually trading at a negative price.

The trading software of Interactive Brokers was not programmed to take values below zero or display minus figures.

As Syed Shah slept blissfully, oil kept plunging like a stone to end the day at minus $37.63 a barrel.

He was woken up by the frantic calls at midnight of the RMS (risk management) department of Interactive Brokers, who demanded that he immediately cough up a margin of $9 Million (Rs. 67 crore), being his loss on the trade.

“I was in shock .. I felt like everything was going to be taken from me, all my assets,” he wept, tears streaming down his face.

Shockwaves across the Globe

The cataclysmic events of 20th April sent shockwaves across the World, with many traders and brokers suffering incalculable losses.

“Yesterday was probably the craziest day of my 25 years of being in the capital markets,” Nithin Kamath, the Billionaire founder of Zerodha said, recollecting the experience, his voice trembling.

Zerodha Commodities suffered a loss of Rs. 10 crore, wiping out 10% of its capital.

Angel Broking suffered a loss of Rs. 13.50 crore.



Interactive Brokers revealed that its losses stand at $88 million equivalent to Rs. 620 crore.

In the wake of the calamity, Nithin Kamath acknowledged that the broking business is fraught with grave risks.

"No amount of margin collected from customers can cover risk," he said in a pithy manner.



Interactive Brokers agrees to bear loss

At this stage, we have to compliment Thomas Peterffy, the chairman and founder of Interactive Brokers.

He fairly admitted that his customers were misled into flying blind owing to a glitch in the broker's software.

“It’s a $113 million mistake on our part,” the 75-year-old billionaire conceded in a rueful tone (loss increased from $88 Million).

"Customers will be made whole ... We will rebate from our own funds to our customers who were locked in with a long position during the time the price was negative any losses they suffered below zero,” the Billionaire said, bringing succor to his clients.

Hopefully, this will bail out Syed Shah as well and he will be spared of having to make good the colossal losses!



Read full article in Bloomberg