BNZ, the forex order gone wrong & the unintended position of more than $1b against the US dollar

BNZ says bug in a third-party foreign exchange trading platform in 2014 resulted in a forex trade replicating in error causing an unintended position of over $1 billion against US dollar for half an hour

Banking

1st Jun 19, 9:31am by Gareth Vaughan

Technical problems with a foreign exchange order at BNZ once resulted in an unintended position of more than $1 billion against the US dollar being taken, equivalent to about 20% of BNZ’s total regulatory capital.

The Reserve Bank revealed this had happened to an unnamed New Zealand bank in its Financial Stability Report issued on Wednesday. A BNZ spokesman confirmed to interest.co.nz that BNZ was the bank involved.

The Reserve Bank comments came in a section in the report on banks' operational risk, which is the risk of losses resulting from inadequate or failed internal processes, people and systems, or from external events. The Reserve Bank points out operational risk events have caused significant losses for banks in New Zealand and abroad, providing examples of this. It gives the wayward foreign exchange, or FX, transaction as one of these examples.

"In April 2014, technical problems in a major New Zealand bank caused 1,280 trades to be generated from a single FX order of $1 million. This resulted in an unintended position of over $1 billion against the US dollar (equivalent to around 20% of the bank’s total regulatory capital)," the Reserve Bank says.

Interest.co.nz asked spokespeople from ANZ NZ, ASB, BNZ and Westpac NZ whether their bank was the unnamed bank featuring in the Reserve Bank revelation. The ANZ, ASB, and Westpac spokespeople said it was not their banks.

A BNZ spokesman acknowledged the bank referred to by the Reserve Bank was BNZ.

"In 2014 there was an unknown bug in a third-party foreign exchange trading platform that resulted in an FX trade that replicated in error. It was quickly identified and fixed, a total time of about 30 minutes, and we alerted the Reserve Bank at the time," a BNZ spokesman said.

Asked about the comment in the Financial Stability Report, a Reserve Bank spokesman said; "To be clear, we're not saying the bank lost $1 billion, just that the money was temporarily at risk."

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8 Comments

by dictator | 1st Jun 19, 12:29pm 1559348952

That's a brown pants moment. I have seen hedge funds evapourate with a trading machine going out of control. They are fortunate that the amount at risk wasn't an even large sum.

by Audaxes | 1st Jun 19, 2:21pm 1559355706

LOL - $100,000.00 a pip is not insignificant order error or DK risk.

by dictator | 1st Jun 19, 3:08pm 1559358512

The fund that traded on XIV only got wiped out in a matter of hours. Investors tried to sue the fund but they had gone from large net worth to zero assets and something like $60m in debt. Their broker was freaking out because the risk on the trade was essentially his because they couldn't pay up.

I wonder it one of our banks will collapse in the blink of an eye due to a bad position.

by JT | 1st Jun 19, 4:18pm 1559362739

I wonder what the former BNZ chair Kerry Mcdonald has to say about this revelation after he called on Sir John Key to resign from ANZ based on in their inadequate capital controls. This happened under his watch after all.

by Glitzy | 2nd Jun 19, 10:26am 1559428019

Comedy that the bank blames 'a third party system', not the fact the bank itself inadequately checked the system before implementing it.

by andyb | 3rd Jun 19, 11:23am 1559517824

What I am struggling to follow with this is why it comes out now? It happened and was reported to the RBNZ in 2014.

Is the RBNZ now seeking to name and shame the banks and highlight to the public the banks cant be trusted as it seeks to find support for the new capital measures.

Im not completely opposed to raising the capital levels of the banks... but public airing old issues to support the RBNZ's case does seem somewhat petty.

by Greg-Hamilton | 4th Jun 19, 10:16am 1559600184

Could be politically motivated :-P and politics is always petty
As the previous comment suggest, some BNZ 'guy' slammed J.Key last week. so he or his sidekicks just raking over stuffs

by glasshalffull | 3rd Jun 19, 5:21pm 1559539310

Wow - that certainly would have been an eye opener for the techy person dealing with the software!! So I am still not clear what the actual final outcome was - "...resulted in an FX trade that replicated in error. It was quickly identified and fixed, a total time of about 30 minutes" - so was there an actual financial gain or loss - or was this trade simply cancelled due to human / machine error (is that even possible?)