Salomon Error Revives Debate on Computers

How vulnerable is Wall Street in the computer age?

Traders and regulators pondered that question Thursday after a clerk at Salomon Bros. Inc. bungled a huge computerized trade, prompting the sale of millions of dollars worth of stocks and driving down the overall market.

The botched trade occurred minutes before the closing bell Wednesday on the New York Stock Exchange. It stunned traders, turning a rally in the Dow Jones industrial average into a loss for the day.

It also raised new questions about a market bugaboo: program trading, the computer-driven purchase or sale of large baskets of stocks, which has been blamed for heightening market volatility.

“The more computerized the marketplace gets, the more diligent we have to be that we’ve plugged all the loopholes,” said Tony Cecin, equity trading director at Piper, Jaffray & Hopwood Inc. in Minneapolis.

The episode was another black eye for Salomon, which is struggling to recover from a bond-trading scandal. The firm quickly admitted the error, in contrast with its failure to immediately report violations of Treasury bond rules last year.

A New York Stock Exchange spokesman said Salomon was cooperating in a review of the incident. Securities and Exchange Commission Chairman Richard C. Breeden said the regulatory agency also was reviewing it.

Salomon confirmed that a clerk misunderstood a customer order to sell $11 million worth of stock as an order to sell 11 million shares of stock, which has a far greater value. Salomon said the value was “significantly lower” than the $500-million figure circulating among traders.

A second clerk who should have checked the order didn’t, Salomon spokesman Robert Baker said.

The stock exchange said Thursday that a senior exchange floor official checked the order with Salomon. The official was told that it was accurate.