Updated from 4:32 p.m. EDT
A series of rapid-fire sell orders put the relative prices of several stock index futures out of whack late Monday on the Chicago Mercantile Exchange, officials said. Exchange rules require the voiding of certain trades in the contract.
It was the second time this month that unusual trading struck a Chicago stock-futures pit. The latest incident occurred almost simultaneously with a swoon in the broader markets, although some traders argued it was coincidence.
According to the Chicago Mercantile Exchange, the incident will cause the voiding of certain trades in the so-called E-mini contract of the
, an instrument that mirrors the components of the S&P 500 but is itself one-fifth its size.
At about 3 p.m. EDT, the S&P 500 -- which was trading near its high of 1015 -- started falling steeply. The index ended the session at about 1004, up six points from Friday's close.
Late Monday, the Chicago Mercantile Exchange cancelled all trades in the September E-Mini S&P contract below 996.00.
"At 3:08 p.m. EDT, a price drop occurred in E-mini S&P futures that lasted four seconds, and
sent E-mini prices from 1000 to 990.50," according to Maryellen Theilen, a spokeswoman for the MERC. "The drop was triggered by a series of cascading stop orders during relatively thin market activity."
The spokeswoman stressed "the situation was not triggered by an error," although rumors to the contrary abounded. The MERC dictates there can be no more than 600 basis point differential between the E-mini and pit-traded contracts; at the point when the exchange decided to intervene, the pit-traded futures had traded as low as 1002, she said; thus the decision to cancel all E-mini trades below 996.
Brad Sullivan, founder of Group 6 Trading in Chicago, noted 250 contracts is the largest single E-mini trade allowed by the MERC. But "you can place multiple 250 E-mini trades," he said.
Another Chicago options exchange, the Chicago Board of Trade, is already investigating a July 3 incident in which a trading error in its mini
futures contract sent the U.S. stock market reeling.
In that event, a futures brokerage reportedly entered an order to sell 10,000 contracts of mini Dow futures instead of the intended 100 contracts.
Aaron Task contributed to this story.