reduction of trade errors committed by the trade

Running Head: REDUCTION OF TRADE ERRORS

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Reduction of Trade Errors Committed by the Trade Operations Area

of a Mutual Fund Company

Ginger S. Nichols

University of Colorado Denver

IT6720 – Research in Information and Learning Technologies

Professor Jennifer VanBerschot

May 1, 2010

REDUCTION OF TRADE ERRORS

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Reduction of Trade Errors Committed by the

Trade Operations Area of a Mutual Fund Company

Introduction

What would you do with $1,000,000? Retire? Travel? Start your own business?

Donate it to your favorite charity? Pay for mistakes made by yourself and your

coworkers?

I work at a mutual fund company (company confidential) as a trade operations

representative and have done so for the past four years. The trade operations area of this

company handles order entry and processing securities transactions as a matter of daily

business. This includes simple financial transactions like buying and selling stock as well

as complicated transactions such as swapping synthetic securities in foreign countries.

When jobs involve humans and data processing, there are bound to be errors and

mistakes made. The trade operations department is no exception. Unfortunately, in a

financial company, mistakes can be quite costly ranging from a few pennies to dollar

amounts in the seven-figure range. In 2008, 155 errors were committed at a cost of

$3,066,956.07. One error in 2008 cost the company almost $2,000,000. (Company

Confidential, 2008). We saw some improvement in 2009 when only 95 errors occurred

costing the company $1,164,644.32. (Company Confidential, 2009).

The company’s reimburses any account that suffers losses caused by a trade

operations error. If the error results in a gain, the account keeps that money. Where does

the money come from to pay for these errors? The money comes directly from the

company’s profits. The trade operations area has a great opportunity to examine the


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reasons why errors happen and find solutions to reduce the number of errors to contribute

directly to the company’s profitability.

Intended Audience

This study is intended for trade operations management, traders and trade

operations representatives. All three groups have influence on reducing the number of

errors committed by the department.

Research Questions

This inquiry proposed to answer the following questions and sub-questions:

• How can the trade operations department reduce the number of trade errors

committed annually?

o What solutions do trade operations management, traders, and trade

operations representatives have to prevent or reduce errors committed?

o Which department policies and procedures are unclear or undocumented

that could possibly result in a processing error?

o Are department members lacking support or information that could

prevent errors from happening?

During the course of the study, I realized that these questions were too specific. I

changed my research questions to allow the participants’ answers to drive the research.

My final research questions are listed below:

• Why do errors happen in the trade operations area of a mutual fund company?

• How can errors be prevented?


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Context of the Study

The trade operations department at a mutual fund company can be a very hectic

environment. This is where the buying and selling of financial instruments happens on a

daily basis. When the stock market is open, time is of the essence because security prices

can change by the second. A security’s price can make a drastic upward or downward

swing in just a matter of moments and potentially impact a client’s return on investment.

Therefore, trade orders from a portfolio manager receive priority over any other task that

a trade operations representative has.

The following is an overview of the trade order entry process.

1. The portfolio manager wishes to buy a stock of XYZ Company.

2. The portfolio manager contacts the trade desk by email, telephone or in person to

provide instructions regarding the transaction. “Please buy 5,000 shares of XYZ

Company for account ABC100 at $50.10 per share.”

3. The trader prints out the email or handwrites a trade ticket.

4. The trader gives the ticket to trade operations. A trade operations representative

enters the trade via computer into the Investment Management System (IMS).

5. The representative runs the trade through an electronic compliance check to

insure that the trade adheres to all company established trading rules. Violations


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of these rules may need to be reviewed by a representative from the compliance

area.

6. After the compliance check, another trade operations representative, quality

checks the paper ticket against the trade entered in the IMS. Correct trade orders

are sent to the trader electronically through the IMS and the paper ticket

physically handed to the trader.

7. The trader reviews the order for accuracy in the IMS. The trader then executes

the buy order on the open market and returns the trade to trade operations for

further processing.

8. Post-trade processing.

a. The paper ticket is given to a trade operations representative for a third

quality check. This third quality check procedure was introduced in 2008

to reduce the errors committed on the trade desk.

b. A trade operations representative finishes processing the trade and sends it

to the accounting department for further review.

The trade order entry process is very hands-on and all 8 steps are completed in

less than 5 minutes in most cases. There can be up to 7 different people involved in the

process. Because of the speed at which the order is put on and the multiple people

working on just a part of each order, the entire process is open to human error.

Literature Review


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This project is not the first to study human error and the literature reflects this

fact. A headline from the Manila Bulletin reports that 57% of all motor vehicle accidents

in the Philippians during 2009 were caused by human error. (See, 2010). Nuclear power

plant accidents at Three Mile Island (1979), Chernobyl (1986), and Tokaimura, Japan

(1999), although all different in nature, were all attributed to human error. (BBC News,

1999). Looking back to the sinking of the Titanic, Battles (2001) reported that multiple

human errors caused that disaster.

The incidents above illustrate the fact that human error knows no boundaries.

Things like time, geography or industry do not matter. Any process involving people is

susceptible to human error. One area where human error is scrutinized like no other is in

the workplace. The majority of the research pertaining to human error was and is

conducted in high-risk areas like aviation and health care since human lives are at risk in

these areas (Krokos & Baker, 2007). Fortunately, errors contributing to the death of a

human are not being reviewed in this project.

As stated previously, the goal of this project is to examine the trade operations

area of a mutual fund company to discover why errors happen and steps to take to prevent

them from happening in the future. The trade operations area processes complex

financial transactions. Errors committed during transaction processing cost the company

money. As King explains, “the vital support role offered by the back office has always

been seen as a non-profit making area – front office merely depends on it not to lose the

profit already made” (2003, p. 13).

Literature Search Questions


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This literature review answers the questions:

• What is human error?

• What are the causes of human errors?

• How can one prevent human errors from happening?

Search Procedures

I started this literature search using Google and Google Scholar. These search

engines were good places to start but I did not find the information I needed. Most

articles were incomplete requiring a subscription to a service to view them. Other articles

I found were not from professional journals or in my opinion credible sources.

The majority of my resources came from professional journals that I found by

using the University of Colorado at Denver Auraria Library online. LexisNexis

Academic, Academic OneFile, SAGE Journals Online, and the Science Direct databases

provided better search results with higher quality industry publications. Keywords used

in my searches included; human error, data entry errors, what is human error, financial

services errors, human error in financial services, mutual funds errors, operational risk,

and back office errors.

What is Human Error?

Gavrilov & Gavrilova describe human beings as “machines made up of redundant

components, many of which are defective right from the start.” (p. 33. 2004). Any

machine made of defective parts will fail eventually. Because humans are flawed and

imperfect beings, our actions and responses to certain situations are imperfect at times.


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When humans fail to act appropriately, human error is created. Sheridan in a 2008 article

further explains:

Human error can be defined as an action that fails to meet some implicit or

explicit criterion, but that definition begs the question of what is the

criterion. The criterion, of course, is arbitrary, and any action can be an

error or not depending on what is chosen for the criterion (p. 314).

Sheridan’s definition of human error is broad. The Occupational Health and

Safety Agency for Healthcare of British Columbia (OHSAH) has a similar but simpler

definition of what human error is. The organization explains human error as “an

imbalance between what the situation requires, what the person intends, and what he/she

does” (OHSAH, 2004).

What causes human error?

The topic of human error prompted many studies over the years. Researchers

have come up with many different theories to explain, examine and prevent human error.

Common error models are O’Hare’s (2000) Wheel of Misfortune, and the Swiss cheese

model (also called the Generic Error Modeling System or GEMS) (Reinach & Viale,

2006). Both models are valid and examine human error and the systems in which the

error occurs. However, the Swiss cheese model proposed by James Reason is widely

accepted to explain and track human errors by quality assurance, risk management and

safety professionals in multiple industries and is the most applicable to this study

(Perneger, 2005).


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Reason’s theory first looks at organizing human error into categories. These

categories indicate the root cause of the error. Reason labeled the two methods of

categorizing errors the person approach and the system approach.

The Person Approach

Reason found that many organizations focus on the person approach. Errors are

caused by a deficiency in the person that could include things like: “forgetfulness,

inattention, poor motivation, carelessness, negligence, and recklessness” (Reason, 2000,

p. 768). The person approach seeks to find the person responsible for the error and to

identify the individual’s deficiency that caused the error. Individuals who subscribe to

the person approach tend to classify human errors as “moral” issues that can be addressed

by simply changing one’s behavior. Errors are viewed in a negative light and blame is

assigned to the individual.

The System Approach

The second approach that Reason subscribes to is called the system approach.

The system approach accepts the fact that humans are imperfect and they will make

mistakes. Humans can change their behavior but there are limits as to the degree of that

change or aspects of human nature that the individual cannot change. (Reason, 2000).

Regardless of the attempt to change behavior, there is only so much impact that the

individual has on preventing human error because the system is designed by imperfect

humans. (Bates, Cohen, Leape, Overhage, Shabot, & Sheridan, 2001). The systems

approach looks at the policy and procedures put in place that the person must conduct his


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or herself within as the source of the human error. (Parliamentary Office of Science and

Technology [POST], 2001).

Error Prevention

Reason suggests counteracting these two categories of errors by using the Swiss

cheese model. The Swiss cheese model recognizes that there are two things that cause

the holes in the defense layers active failures and latent conditions. Active failures

(person approach) are those things that imperfect humans do like make mistakes or not

follow procedure or forget to do something. Latent conditions (system approach) are the

flaws that are designed into the system. Do not forget those flawed humans are the

engineers and designers who build these safety layers. Latent errors can have immediate

impact upon the institution or they could lie in wait for years until the perfect active

failure occurs to awake the latent error.

Reason is a proponent of systems having multiple layers of protection to prevent

both system and human error. However, imperfect humans design the system so there are

always going to be holes in the system where an error could occur. This is where the

name for the model comes from. Each layer of protection resembles a slice of Swiss

cheese and one continues to layer the slices on top of each other until no holes are seen.

When no holes are visible, there is a step within the process to stop the error. (Ren,

Jenkindon, Wang, Xu, & Yang, 2008).

The Swiss cheese model does not claim to stop all errors. It would actually be

impossible to do that working with two imperfect variables. Reason further explains why

errors can still happen within the framework of his theory.


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The presence of holes in any one ‘slice’ does not normally cause a bad outcome.

Usually, this can happen only when the holes in many layers momentarily line up

to permit a trajectory of accident opportunity – bringing hazards into damaging

contacts with victims. (2000, p. 269).

Quality of Literature

The literature reviewed was pulled from a variety of sources with the majority of

articles coming from professional journals and credible sources like the BBC. The

articles contained both qualitative and quantitative research methods and at times a

mixture of both. However, articles that discussed specific incidents or accidents

involving human error focused more on quantitative research.

Some of the literature may seem dated. For example, “Reason’s Human Error:

Models and Management” article was published in 2000. There are multiple mentions of

Reason’s article throughout later literature (Dekker, 2007; POST, 2004; Perneger, 2005)

that lead one to believe that Reason’s article is well respected by other theorists and

researchers. Reason’s research has served as a foundation for others in their research of

the topic as well. (Perneger, 2005).

Gap in Literature

In a 2001 report, Wiegmann and Shappell, found that human error was cited as a

cause in 70% to 80% of all aviation accidents. (p. 1006). Dekker (2007) reported that

mistakes made by doctors kill between 44,000 and 98,000 patients annually. (p. 178).

When human life is involved, industries must report incidents to their regulatory bodies


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and eventually the information becomes public. However, the mutual fund industry does

not disclose the financial impact human error has upon it.

As I reviewed literature for this inquiry, I found a large gap in finding studies and

information regarding the impact of human error on the mutual fund industry. This

information was difficult to find because it happens behind the company’s closed doors.

A loss due to an employee’s error could be lumped into an operating expense on a

balance sheet and satisfy the regulatory requirements for disclosure. This data just is not

made public to people outside the company.

This literature review examined human error in a variety of professional settings.

Before starting to research how to prevent human error in the trade operations area, one

must know what human error is, and some of the factors that cause it. The review also

discussed theories to prevent errors. A firm foundation as to what human error is and its

causes was necessary to move into the next phase of the project, the actual action

research.

Methods

This study was an action inquiry project. Ernest Stringer (2007) described action

research as “a participatory process that involves all those who have a stake in the issue

engaging in a systematic inquiry into the issue to be investigated.” (p. 6). The action

inquiry approach was best suited to answer the research questions. The trade operations

department worked as a team and came up with innovative solutions to reduce the

number of errors committed in the department. A group of people will have different


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perspectives and different experiences that will help come up with creative answers to the

research questions as opposed to one or two people working on the issue.

Participants

The entire trade operations department was given the opportunity to participate in

this study. This department is a relatively small area consisting of 25 trade operations

personnel and seven equity traders. The entire group was asked to take the confidential

survey and management and representatives participated in discussions. Participation

was expected to be 50% for the survey and 25% for the discussions.

Data Collection

From March 19 through April 6, 2010, I collected data for this project through a

survey, interviews and reviewing error data maintained by the company. This section of

the paper reviews the data collection process and interpretation of that data. As stated

earlier in the paper, the goal of this project was to answer the following questions:

• Why do errors happen in the trade operations area of a mutual fund company?

• How can errors be prevented?

In the original proposal for this study, data was to be collected by surveying all

members of the trade operations department and conducting small focus groups for

management and trade operations representatives. Participation in the survey was better

than expected but the focus group participation did not meet expectations. A total of

62% of the total department members responded to the survey. Appendix A further

breaks down participation by each group within the department.


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Data collection methods included surveying the entire trade operations group

including trade operations representatives, management, other support personnel and

traders. The survey was conducted electronically via SharePoint on the company’s

intranet. The survey was 11 questions long and consisted of multiple choice questions

and open-ended questions. A complete list of survey questions appears in Appendix B.

The survey was the most convenient way to gather the opinions of this group.

The trade operations area had slow periods through out the day where individuals took 10

to 15 minutes to complete the survey. Some days did not have a slow period, so the

group had an entire week to complete the survey. The survey link was emailed

(Appendix C) to participants and the individuals choose to complete the survey at his or

her desk when most convenient to him or her.

The survey was anonymous but each participant was asked to which group he/she

belonged for classification purposes. The most participation came from the “trade

operations other” area with an 86% response rate while the traders had the lowest

response with 43% responding (Appendix A).

Small group discussions were scheduled for both trade operations representatives

and trade operations management to discuss the results of the survey and any questions

that arose as a result of the survey. Participation in the small focus group discussion did

not meet the 25% participation rate anticipated in the original proposal. Two out of five

management team members participated in a focus group for management. Only one

representative volunteered to come to a focus group after work. The small group sessions

with the trade operations representatives were cancelled and conversations with


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individual representatives were held instead. I captured the results of the interviews and

focus group by taking notes at each session.

The last source of information that I harvested data from was the annual error

reports kept by the department. The reports were reviewed and analyzed looking for

trends or any additional information that could prove useful for the purposes of this

project.

Data Analysis

The information collected from the methods mentioned above created a lot of data

for review. For the purpose of this study, a few data analysis methods were used to

interpret the data collected. Most of the techniques used were taken from the book Action

Research (3rd Edition) written by Ernest Stringer. (2007).

The survey was completed in Microsoft SharePoint that easily exports the survey

responses into Microsoft Excel. The “sort” function in Excel allowed me to arrange the

data in a way that made it easy to interpret. Unfortunately, some of the questions in the

survey did not really generate answers that applied to this study and they are not

discussed in this paper (Appendix B). Stringer notes that irrelevant information should

be uncovered in the data review and not included in the study. (2007, p. 100).

Since the data was already in a spreadsheet, I organized it into table format

(Appendices D and E) to display. The tables organize a lot of data in a manner that is

easy to read and interpret.


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For the interview and small group discussion I found that unitizing the data was a

good place to start. I cut apart my notes, assigned each piece of paper a category and

organized the papers by category. This allowed me to identify common themes and

concerns that individuals had. (Stringer, 2007, p. 100-102).

This research study does not adhere to the entire structure of an Organizational

Review but it contains many of the elements of one. The trade operations department can

be divided into four distinct areas that make up a smaller organization within an

organization. Those areas include:

• Trade Operations Representatives

• Trade Operations Other (settlements and project managers)

• Trade Operations Management

• Traders

Although the different areas did not have experiences that greatly differed from

each other I thought the groups might have different experiences due to the differences of

each group’s job tasks. I focused on the “Operation” and “Problems, Issues and

Concerns” areas of the Organizational Review. (Stringer, 2007, p. 110-111).

My original intent was to interview trade operations management and trade

operations representatives separately in two small focus groups and capture the groups’

sentiments by taking notes. Unfortunately, the small focus groups did not work out for

both groups.

Input from representatives was very important for the study, so I changed the

format from a small group to individual interviews. I emailed the representatives to


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inform them that the focus group was cancelled and asked the representatives to

participate on a one-on-one basis. Representatives chose to email or discuss their

thoughts with me at their leisure. I took notes to document the representatives’ answers

during the individual interviews.

I conducted a focus group with two members of the management team. I used

this opportunity to discuss the survey results and management’s feelings on errors in

general. The discussion was also captured through taking notes.

As a result of both the survey and the small group meetings, I collected a great

deal of information from the participants. The participants’ answers were reviewed and

categorized by the nature of the answer and the topic addressed for further analysis.

Project Schedule

This project ran on a tight schedule and met all set deadlines. Please review Table

1 for the breakdown of the project’s timetable.

Table 1 – Project Overview Schedule

Date Activity February 21 – 28 Review literature March 1 – 7 Write literature review March 8 - 13 Edit literature review March 14 – 17 Compose survey for trade operations March 18 – 24 Allow trade operations to take survey March 25 – 28 Interpret data from survey March 29 – April 2 Interpret data from 2008 and 2009 error

reports April 5-6 Meet face to face with trade operations

volunteers to discuss data April 6 – 11 Write literature review April 12 – 17 Edit literature review April 19 – 20 Time to identify and research any gaps in

study


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April 21 – 25 Write final research paper April 26 – May 1 Edit final paper

Specific milestones were identified to insure that the project remains on time. Please

review Table 2 for the schedule of milestones.

Table 2 – Project Milestones

Date Milestone March 13 Submit final literature review March 28 Survey results collected and interpreted April 2 Review of 2008 and 2009 error reports

complete April 6 Face to face interviews finished April 17 Submit final data analysis May 1 Submit final research report

Ethical Procedures

The study was conducted with a high priority assigned to ethical considerations.

Maintaining the confidentiality of the participants’ responses was extremely essential to

completing the study. The survey for this study only asked one demographic question;

that is “Are you a trade operations representative, trade operations manager, trade

operations other area or a trader?” This question was valuable to the study to determine

if there was a disconnect between management and representatives. All members of the

department have the opportunity to review the survey data in the final version of the

project report.

Potential Impact of the Project

This project has the potential to impact the trade operations area in many ways.

When a trade error results in a loss to a client’s portfolio, the company makes up for that


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loss. This money comes directly from the company’s profits. An area that loses millions

of dollars for the company receives more attention than those that do not. Perhaps, this

negative attention can be turned positive as the department continues to reduce the

number of errors committed.

Checks for Rigor

The data gathered in this study is valid and reliable. Participants answered survey

questions at their own desk at a time of their choosing. The responses given during the

survey and the interviews are confidential. Participants were given two ways to

contribute to the study the answers given in the survey were echoed in the discussions

which lends more validity to the data.

Although the study is reliable, it does have some limitations. The trade operations

department is not the only area that is responsible for trade errors. The company’s 2008

Trade Error Summary and 2009 Trade Error Summary cite the legal, corporate actions,

accounting and compliance areas as responsible for creating trade errors. (Company

Confidential 2008, 2009). This study did not investigate those departments.

Another limitation is the failure of the entire department to participate in the

survey and discussions. Perhaps the individual(s) who had great ideas for preventing

errors chose not to participate in the study. Their ideas were not captured in findings

portion of this study.

Findings


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The most important question that this study attempted to answer was “Why do

errors happen?” When one knows why they happen, he or she can take steps to prevent

them from happening in the future. Survey respondents were asked this open-ended

question, “In your opinion, what are the top two or three reasons why errors happen?”

Appendix D summarizes all answers given by survey respondents. The top three

answers to the question were:

1. Lack of Attention to Details/Poor Concentration

2. Rushed to Complete Task/Time

3. Miscommunication

The top three answers to this question were all examples of human error that

would fit into Reason’s person approach to categorizing errors. (Reason, 2000, p. 768).

The three answers all focused on deficiencies in the person. Representatives and

management were asked to offer their thoughts regarding the answers.

The number one answer to this question was “lack of attention to details/poor

concentration.” Many interviews reflected the opinion that people became complacent

while completing their jobs. One management team member stated, “People glaze over

tickets because they see the same thing over and over and tend to lose their focus. “

When this question was asked of representatives, they cited multitasking as a

reason that their concentration was broken. A representative stated that, “You get

distracted unintentionally. You might be drawn away from your work to help others.”

The second most common response was the rush to complete one’s job tasks

created errors. The trade desk at a mutual fund company can be a very hectic place. It


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takes a matter of minutes to transfer a portfolio manger’s trade request into a security

trade that a trader works in the open stock market. In an interview, one representative

described the environment as “typically steady work with periods of organized chaos

when the trade operations area receives a lot of time sensitive work at once. ”

Another representative commented, “you need to get things done quickly but it is

expected that you work under pressure.” When the desk gets busy people are up and

moving, talking to each other to see who needs help or where the order is in the process.

During busy periods, one can “focus on getting the work done as quickly as possible

while missing key details that could potentially cause an error.” A member of the

management team mentioned that the “implied urgency or pressure to get work done,

trades to the blotter or resolve issues can cause errors.”

The interviews provided limited explanations of the third answer,

miscommunication. Perhaps interviewees considered this topic to be self-explanatory?

However, some examples cited were not being able to understand a portfolio manager’s

intentions on a ticket submitted to the trade desk via email. Miscommunication can occur

when the portfolio manager uses words like “trim” or “shave” instead of using the word

“sell.” Another example cited was “when two people interpret department policy

differently and then debate the meaning of the policy.”

The company keeps very detailed reports regarding the errors that occur in the

trade operations area. In 2008, 95.6% of all errors were attributed to some type of human

error. (Company Confidential, 2008). The number gets better in 2009 when only 93.5%

of the errors were traced back to human error. (Company Confidential, 2009). The


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survey results agree with the data maintained by the department, human error is the main

cause of errors in trade operations.

How can errors be prevented?

Representatives were asked in the one-on-one interviews, “What ideas do you

have to prevent errors?” The representatives shared common views and their answers fell

into three categories: accountability, rewards and computer systems.

One area that produced mixed results in both the survey and interviews was the

issue of accountability. The survey asked participants “Do you feel accountable for the

errors you are involved in? Please explain.” One third of respondents did not answer this

question (Appendix E) but those who did indicated that yes, they felt accountable for

errors they were involved in. The majority of responses involved personal accountability.

A few examples are below:

• “Absolutely. Errors are a reflection on the people involved in them.”

• “Yes when I'm involved in one I hold myself accountable but in many cases

errors are beyond my control.”

• “Yes, I hold myself to a high standard and don't want to be the reason for any

mistakes.”

Department members indicated that they feel a high degree of personal

accountability while completing their job tasks. Only one person cited lack of

accountability as a reason why errors occur in the electronic survey (Appendix D). The

results of the survey would lead one to believe that accountability was not an issue.

However, the topic of accountability came up in three of the six individual interviews.


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One representative stated, “I don’t know who is responsible for an error, should it

be the person who put the order on or the quality check person who missed the error?”

Confusion around questions regarding accountability in specific instances could be

cleared up in the monthly one-on-one meetings with supervisors and representatives.

“Supervisors tell us to bring our errors to our meetings but I never get any feedback,”

reported a representative.

Two representatives mentioned that they would like to see more accountability at

the individual level. Error reporting is done to the trading area responsible for it. For

example, an error created while trading a corporate bond is attributed to the entire fixed

income-trading desk rather than the one person responsible for that error.

Representatives mentioned that, “increasing accountability at the personal level will

make people take more responsibility for the accuracy of their work.” “Tying the number

of errors committed to one’s bonuses and raises would make people pay more attention.”

I brought this subject up in the management focus group. The management team

believes that although errors are reported at the trading area level that errors do impact

the individual’s compensation. A member of the management team explained, “errors

are taken into consideration at the individual level but with some caveats.” Those

caveats include intangible things like does the representative have more errors than his or

her peers because that representative takes on much more complex tasks than the other

team members?

The management team also cited that it is difficult to “track and quantify who

does what.” Some errors are cut and dry when it comes to determining the responsible


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party. Other errors are difficult to track the error back to the individual(s) responsible for

them because the IMS does not have this kind of reporting capability. There appears to

be a bit of a disconnect between management and representative’s perception of the

measurement individual accountability.

The representatives who mentioned individual accountability also referenced the

lack of rewards or recognition in the department. The accountability issue can be tied to

the lack of recognition for top performers in the department. If error data cannot be

traced back to the individual then there is not a way to determine those individuals who

complete their job tasks with a high degree of accuracy. A representative stated

“monetary rewards, extra paid time off, or donations to a favorite charity for individuals

who do not make mistakes could be an incentive for everyone to keep error rates low.”

The third solution representatives mentioned to decrease the incidents of errors on

the desk was the IMS. “We have a system that has great computing power yet we don’t

utilize the whole thing. We just don’t use the systems to their full capacity.” One

representative cited the “program” button in the IMS as an example. “We run program

trades all the time. There is a ‘program’ button in the system. No one knows what it

does. Maybe this is something that we could use to make our jobs easier?” The

representative continued, “We don’t know the best way to utilize resources. When you

ask about it, things get put on the backburner and forgotten.”

Implications for Practice

From data gathered and documented in this paper, one can make both general and

specific recommendations to reduce errors in the trade operations department. Based


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upon the lack of scholarly work as noted in the literature review, the topic of human error

and a trade operations department of a mutual fund is not well researched. Further

research has the potential to uncover and correct other causes of errors in a trade

operations department not covered in this study. Therefore further study is highly

recommended.

The main purpose of this study was to answer the questions “Why do errors

happen in the trade operations department of a mutual fund company?” and “How can

errors be prevented?” The recommendations to address these questions are very specific

and come directly from the interviews with trade operations representatives.

This study uncovered a gap between management and representatives involving

error tracking. Representatives commented that errors were not tracked back to the

individual(s) responsible for them in all cases. Representatives wanted more concrete

information when it came to assigning fault for an error. While management explained

that errors were tied back to the individual but the error tracking was not always black

and white. This knowledge gap between management and representatives could be

solved in a department meeting where management can explain their error tracking

metrics.

The responses involving individual accountability appear to come from the person

approach as described by Reason. The person approach tends to place blame on those

individuals who commit the errors. (Reason, 2000, p. 768). I found it interesting that the

representatives did not want to place blame on their peers but rather reward those peers

who did a good job. This is a relatively simple issue to rectify. When management and


26

representatives are on the same page regarding error tracking, a rewards system could be

put in place. This could be something as simple as an employee of the month award to

recognize those individuals whose job quality leads the department.

A final recommendation is to leverage the technology in the IMS to simplify job

tasks and potentially reduce errors. Most representatives who commented on the

computer systems did not know where to find resources to learn more about the

functionality of the IMS not currently used by the department. Perhaps, representatives

could receive more training on the functionality of the IMS either through an outside

training vendor or through reviewing advanced user’s guides obtained from the IMS

manufacturer.

The representatives’ opinion’s echoed the studies conducted by Reason.

Improving the IMS or using the system to its full potential falls into Reason’s system

approach to error causation. Representatives suggested that moving away from manual

processes to more computer-based solutions would reduce errors. If the IMS is designed

according to Reason’s Swiss cheese model, the IMS should have multiple layers of

protection build in to prevent errors from happening. (Reason, 2000, p. 269-270).

Conclusion

The purpose of this study was to determine why errors happen and ways to

prevent errors from happening on a mutual fund’s trading desk. The literature regarding

the specific area of errors occurring in the trade operations area of a mutual fund is

lacking. However, there is a great deal of research regarding human errors in general that

applied to this study.


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Data collected during the course of this study indicated that lack of attention to

details, the time sensitive nature of the job and miscommunication are the top human

errors that occur on the trading desk. Study participants offered a variety of solutions to

prevent errors from happening in the future. Some solutions like tracing errors back to

the individual to assign blame did not agree with the literature. However, suggestions

such as leveraging the IMS to its full potential do agree with the literature.

This study offered several recommendations to reduce errors in this particular

situation. Perhaps in the future, we will see more research into trade errors on mutual

fund or any trade desk for that matter. The amount of published information about the

subject is limited while the commission of errors in this environment can be costly.


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Appendices

Appendix A: Trade Operations Error Survey Participation by Group.


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Appendix B: List of Survey Questions and Answers:

1. This question is for classification purposes only. Please indicate which group

you belong to:

• Trade Operations Other (Settlements & Project Managers)

• Trade Operations Representative

• Trade Operations Management

• Trader

2. Who is responsible for quality checking trade orders?

• Trade Operations Representatives

• The Quality Checker

• The Trader

• The Third Quality Check Person

• All of the above

3. When you commit an error, do you review the error paperwork to

understand what caused the error?

• Yes, always

• Yes, sometimes

• No, never

• Does not apply to my job

4. If you didn't actually commit the trade error but you quality checked the

ticket or traded the ticket, do you review the error?

• Yes, always

• Yes, sometimes


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• No, never


5. Do you review the monthly error and correction summary that is emailed out

to the department?

• Yes, always

• Yes, sometimes

• No, never


6. Do you propose solutions to prevent errors from happening in the future?

Check all that apply.

• Yes, when I commit the error

• Yes, when I was involved in the error (Aced or traded the ticket)

• Yes, when I discover a situation that could potentially cause an error

• No, Never


7. Do your suggestions impact department policy?

• Yes, always

• Yes, sometimes

• No, never


8. Do you feel accountable for the errors you are involved in? Please explain.

9. In your opinion, what are the top two or three reasons why errors happen?


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10. Would you be willing to participate in a focus group to discuss trade errors

in Denver? (Sorry London and Singapore) (All information gathered during

the session will be kept confidential)

• Yes

• No

11. If a trade operations representative entered a buy ticket as a sell and the

ticket was traded this way, who is responsible for the error? Check all that

apply.

• The person who ultimately caused the error

• The quality checker

• The three quality check person (3QC)

• The trader


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Appendix C: Text of the email with the link to the survey sent to the entire trade

operations department.

Hi everyone.

I need your help! I'm working on a project to look into the errors committed in 2009 and

2008 to see if there are any trends or items that we can fix to reduce the number of errors

going forward. Craig did mention in the department meeting that the 2010 errors were

down when compared to 2009, which is great news. We can continue to work together to

reduce errors even more! I want to know your thoughts. What can we do better as a

team? What loose ends could we tie up?

Could you take a few minutes to complete the survey at the link below? The survey is

voluntary and by clicking on the link below you agree to participate. All responses are

confidential and I will provide everyone with a copy of the results when I finish my final

paper. Please respond to the survey by close of business on March 29, 2010. (This is an

invitation so there is a reminder to take the survey on Friday)

Link to survey on company intranet

If you'd like some additional background, please keep reading.

For those of you who don't know, I'm currently a Master's Degree student at the

University of Colorado Denver in the Information and Learning Technologies - Adult

Learning and Instructional Design program. This semester I'm taking a research methods


33

class and decided to take this up as a research topic. Stacey also gave me the ok to work

on the project.

I'm using the principles of action research in the study. Action research isn't about one

person looking into a situation; it involves the entire group of people that the research

touches. You can read more about it here http://en.wikipedia.org/wiki/Action_research.

Since all of us have been involved in an error at one time or another, we all have

experiences to contribute to the research process - everyone, including traders and

management.

Please let me know if you have any questions. I'll be on PTO from March 24th through

the 29th but I will check my email and answer any questions you might have.

Thanks in advance for your participation!

Ginger


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Appendix D: Responses to the Question, “In Your Opinion, what are the Top Two or

Three Reasons Why Errors Happen?”

Response Representatives Traders Management Other Total

Third Quality Check Person Out of the office 1 0 0 0 1

Lack of Attention to Details/Poor Concentration 4 1 2 8 15

Did not follow policy or procedure 0 0 1 0 1

General Human Error 1 1 1 0 3

Inadequate Documentation of Policy and Procedure 0 0 1 0 1

Lack of Accountability 0 0 0 1 1

Miscommunication 4 0 1 4 9

No Answer 4 0 0 1 5

Rushed to Complete Task/Time 4 3 1 3 11

System Issues 0 1 0 0 1


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Appendix E: Answers to the survey question, “Do you feel accountable for the errors

you are involved in? Please explain.”

Area/Role Answer Other (Settlements, Project Manager) Yes, because it is my job to prevent them

Representative Yes. If I'm at fault I should be accountable. Plain and simple.

Trader Yes, I feel any error that I am involved it, I could have done something to prevent it.

Other (Settlements, Project Manager) Only if I caused it.

Trader Yes, it is part of the job to be accountable. A trader is the last line of defense but you need to trust the rest of the team

Trader Yes. If I trade it and it's an error, I feel accountable

Representative Absolutely. Errors are a reflection on the people involved in them.

Representative Yes, if am the QC'er or putting the ticket on, I feel responsible for the error.

Representative Yes when I'm involved in one I hold myself accountable but in many cases errors are beyond my control.

Other (Settlements, Project Manager) Yes.

Management

Yes, always. If I make a mistake, I take full accountability, try to indentify what caused the error, and look for ways my team and I can prevent it going forward.

Representative Sure, if I made the mistake Other (Settlements, Project Manager)

Yes, I hold myself to a high standard and don't want to be the reason for any mistakes.

Management Yes.


36

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