E-Minis Cause Some Major Worry

Monday morning, a CBOT spokeswoman said the incident is "currently being reviewed" but declined to comment further. Most market participants believe the trade was no accident.

"The CBOT made it clear you can't assume this was a fat-finger error, implying something done on purpose," said John Lothian, president of the electronic trading division of Price Futures Group in Chicago.

The episode demonstrated the potential for mischief, he continued. "If you know if you create an error in mini-Dow and it's going to be busted so you're not liable outside a certain range, and it's moving the other markets where those trades won't be busted," there's little disincentive for someone with nefarious intentions, Lothian said. (The episode also emboldened conspiracy theorists who believe the markets are increasingly manipulated via the futures, albeit usually to the upside.)

Of course, it's possible the 10,000-lot trade was placed in error and/or whoever was responsible will face stiff penalties, discouraging imitators.

Still, the July 3 incident was "the first big warning shot" about potential troubles emanating from the electronic futures, said Brad Sullivan, founder of Group 6 Trading, which specializes in index futures. "It showed you how many guys are involved in these program [trades]" and employing strategies that "link all the futures together -- from mini Dow to Nasdaq and Russell and back." (The CME also offers E-mini products for the Nasdaq 100, Russell 2000 and S&P Mid-Cap 400.)

Sullivan further observed "a shift from the pit being the primary [futures] market to electronic minis being primary," raising the possibility that future incidents in electronic futures could trigger massive dislocations, perhaps even a stock market crash.

"Yeah, it's possible," said Phil Flynn, senior market analyst with Alaron Trading, a Chicago-based futures and options brokerage. "It's very possible another 'mistake' could be made. As good as [electronic futures trading] is, it's still in its infancy and we'll probably run across different problems as time goes by." Rather than precipitating a crash, however, Flynn wondered how electronic futures will fare in the event of one caused by other events.