CME - Trader Caught Cross Trading S & P In 200k Lots

Discussion in 'Wall St. News' started by THE-BEAKER, Jan 26, 2010.

  1. Computer-driven trading raises meltdown fears

    By Jeremy Grant in London

    Published: January 25 2010 23:06 | Last updated: January 25 2010 23:06

    An explosion in trading propelled by computers is raising fears that trading platforms could be knocked out by rogue trades triggered by systems running out of control.

    Trading in equities and derivatives is being driven increasingly by mathematical algorithms used in computer programs. They allow trading to take place automatically in response to market data and news, deciding when and how much to trade similar to the autopilot function in aircraft.

    Analysts estimate that up to 60 per cent of trading in equity markets is driven in this way.

    Concerns have been highlighted by news that NYSE Euronext, the transatlantic exchange operator, has fined Credit Suisse proprietary trading arm for the first time for failing to control its trading algorithms. In the Credit Suisse case, its system bombarded the NYSE’s systems with hundreds of thousands of “erroneous messages” in 2007, slowing down trading in 975 shares.

    The case was far from isolated, say traders. CME Group, the Chicago-based futures exchange, is investigating a case this month where a trader in “mini” S&P Index futures contracts “inadvertently traded approximately 200,000 contracts as both buyer and seller”.

    Last year, the London Stock Exchange suffered a three-hour outage after its trading system collapsed under the strain of a huge volume of orders. Some traders blamed the spike in volumes from algorithmic trading.

    Frederic Ponzo, managing partner at GreySpark Partners, a consultancy, said: “It is absolutely possible to bring an exchange to breaking point by having an ‘algo’ entering into a loop so that by sending them at such a rate the exchange can’t cope.”

    Regulators say it is unclear who is monitoring traders to ensure they do not take undue risks with their algorithms.

    The Securities and Exchange Commission has proposed new rules that would require brokers to establish procedures to prevent erroneous orders.

    Mark van Vugt, global head of sales at RTS Realtime Systems, a trading technology company, said: “If a position is blowing up so fast without the exchange or clearing firm able to react or reverse positions, the firm itself could be in danger as well.”
  2. TraDaToR


    200000 lots = 138 K in exchange fees alone( full member rate )...LOL
  3. CME is getting what they wanted.
  4. Sounds like they need an IT upgrade.
  5. For over 1 1/2 years, I have the suspicion that this kind of bullshit happens every single day. There is no "real" buying or selling volume. It's fake "created" volume.

    Mini S&P trading sometimes generates rogue volume patterns, impossible to explain by large players' buy or sell programs.
  6. Interesting, however how would you account for the volume of FESXH0, which has similar volume most days?
  7. kaciara


  8. This is why experienced small traders with a brain have the edge. Just like the Vietcong had the edge against the bigger foe (The US) during the vietnam war.
  9. 1 1/2 years?

    you must have meant 20 years.

    ASusilovic, you think that selling bar today just happened? I've thought for the last 1 1/2 minutes that they are full of shit.

  10. joe4422


    This is interesting because if a large firm wants to excite people into buying, what better way to do than to create an enormous buy volume bar. Anyway, they probably don't need to pay exchange fees as they're liquiditiy providers. Just another tool to manipulate the markets.
    #10     Jan 28, 2010