E-Minis Cause Some Major Worry

Mini Madness

The episodes in question occurred on July 3 in the mini-size Dow futures, and on July 14 in the E-mini S&P futures.

During both sessions, major stock proxies suffered intraday setbacks amid rumors of erroneous trades. Market participants speculated that a gaffe occurred akin to last October, when a Bear Stearns trader mistakenly placed an order to sell $4 billion worth of S&P securities vs. the intended $4 million sale.

In actuality, neither episode this month was the result of error.

The July 14 incident was caused by the "cascading effect" of a series of simultaneously executed stop orders, according to CME spokeswoman Maryellen Thielen. This created an order imbalance that caused the E-Mini S&P futures to fall from 1000 to 990.50 in four seconds.

"There were no errors," she declared. Still, something went awry that afternoon, as the Merc canceled, or "busted," E-mini trades below 996, as reported here.

The exchange plans to introduce "stops logic" technology this fall designed to "rectify price movements exacerbated by stop orders," Thielen said. She was unable to provide further detail.

In sum, the CME's July 14 episode seems to have been caused by an unfortunate confluence of events. Conversely, the July 3 incident involving the CBOT's mini-sized Dow futures appears the result of an intentional effort to unsettle the markets.

Mini Echo Boom, or Bust?

An order to sell 10,000 lots of mini-sized Dow futures was entered that day, a huge amount, considering the contract had average daily trading volume of about 48,000 contracts last month. (Reflecting the greater popularity of underlying S&P futures, E-mini S&P futures averaged about 600,000 contracts per day in June.)

Given thin volumes and an early close ahead of the July 4 holiday, the outsized sell order had an even greater impact. Electronic Dow futures tumbled nearly 600 points in short order. Foreshadowing the CME's July 14 decision, the CBOT later canceled all Dow futures trades below 9018. Still, the futures' swoon contributed to the Dow Jones Industrial Average falling more than 100 points from its intraday high and closing down 0.8%.