SocGen Computer Glitch Said to Ripple Through Bond Derivatives

  • ICE restated open interest on contracts, citing member error
  • Bank staff said to manually process orders after malfunction

Societe Generale SA suffered a systems failure that rippled through several futures contracts last month, according to people familiar with the matter, raising questions about the derivatives powerhouse’s risk oversight and the reliability of its technology.

The Paris-based bank’s back-office systems malfunctioned, causing errors in figures that showed up on Intercontinental Exchange Inc., said the people, who declined to be identified because the conversations were confidential. Bank staff had to sort through client trades manually, one of the people said, while ICE later restated data on seven contracts.

“A technical fault on one component of our clearing platform, and compounded by extreme market conditions following the U.S. elections, meant the trade-load system was impacted briefly in November,” a SocGen spokesman said in an e-mail. “This was an exceptional event, which has been resolved. Our platform has been further strengthened and continues to run as normal. Risk management, for the bank and its clients, continues to be an absolute priority.”

The glitch took place as trading volumes in many assets soared in November. Global markets were roiled after Donald Trump’s election as U.S. president and as OPEC debated a deal to cap oil production. Brent futures volumes at ICE were the highest since January.

ICE said on Nov. 17 that contracts including Gilt and oil futures on its derivatives exchange had been “materially overstated” due to member-system error. ICE was referring to SocGen, which overstated some positions, the people said. The flawed data signals SocGen may have misunderstood how much risk its clients were taking.

A spokesman for ICE declined to comment.

ICE had to restate open interest, which is a measure of outstanding futures positions. That data helps calculate how much collateral must be held. ICE’s clearinghouse operations -- which collect bonds and cash from members to prevent a counterparty collapse from spiraling out of control -- are the third biggest in the world.

“It is disconcerting -- the market does rely on open-interest information to be reported honestly to give a representation of how big the market is,” said Craig Pirrong, a professor of finance at the University of Houston.

SocGen’s mathematical prowess has made it a world leader in equity derivatives. ICE, too, is among the most important derivatives players globally. It has grown from a small commodities-trading platform into the world’s second-largest exchange operator. The Atlanta-based company runs some of the biggest futures markets as well as the New York Stock Exchange.

There was a big shift in open interest in Gilt futures on the date ICE restated the data. Open interest fell by about 103,000 contracts after the correction. Based on the current contract value, that’s a difference of about 12.7 billion pounds ($15.7 billion).

— With assistance by Fabio Benedetti Valentini, and Stephen Spratt

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