In what may be the latest example of unintended irony, shortly after the October 7 pound sterling flash crash, which saw the UK currency plunge by more than 9% against the dollar, falling from $1.26 to $1.14, in about 40 seconds – a historic flash crash in one of the world’s most liquid currencies – we presented a forensic explanation of what happened in that minute when sterling plummeted in a bidless market from Citigroup. 

As it turns out, Citi may indeed have been the most familiar with the dynamics behind the pound crash because according to a new report from the FT, it may have been responsible for it. According to the report, a UK probe into October’s “flash crash” has focused heavily on the Japanese trading operations of Citigroup, “which fired off repeated sell orders that exacerbated the pound’s fall, according to bankers and officials involved in the inquiry.”

While Citi’s traders are not believed to have started the slide in the currency in thin Asia trading, its Tokyo desk played a key role in sending the pound to its lowest levels in 31 years, the FT said. The value of the pound fell from $1.26 to $1.14, with a 9 per cent slide in about 40 seconds. The Bank of England has said publicly that the October 7 crash is “set apart by the lack of a clear fundamental trigger” but its investigation of the event focused on a single incident, according to a person briefed on the probe.

So what happened that exacerbated the plunge? In one word: panic.

People with knowledge of events at Citi that day said one of the US bank’s traders placed multiple sell orders when the currency slumped in unusually fragile market conditions. One of the people said the trader “panicked”.

As the FT logically notes, “the incident raises questions on the quality of supervision and risk management at the biggest bank in the foreign exchange business. In the wake of the crash, UK regulators have written to several banks telling them to shore up oversight of the foreign exchange desks to prevent similar shocks.”