Explanation of market Drop on July 14, 2003

Discussion in 'Trading' started by MarkHyman, Jul 16, 2003.

  1. MarkHyman

    MarkHyman Advanced Futures

    This is a Message From: GLOBEX Control Center

    Effect Date: Tue July 15, 2003 02:50 pm CST

    Notice Number: System Update #23

    Message: At 2:08:04 p.m., CT, a price drop from around 1000.00 to 990.50
    (9.5 points) occurred in the E-mini S&P(TM) 500(R) futures contract. The
    drop, which lasted for four seconds, was caused by an order imbalance and a
    cascading effect of a number of stop orders that were executed incrementally
    at consecutively lower prices. The price drop was not triggered by an error

    Through a combination of internal controls and alerts, the Exchange
    immediately began investigating the situation and reviewed market conditions
    and volatility, prices of related instruments in other markets and other
    relevant factors. As other major index markets did not reflect a similar
    price move during the E-mini decline, and the full-size S&P 500 futures
    contract reached a low of only 1002.00, it was determined that all trades
    below 996.00 would be cancelled. (CME's policy provides that the "no bust"
    range for the E-mini S&P 500 futures contract is 6 index points.)

    In the fall, CME will be instituting the industry?s first "stops logic"
    capability that will address price movements that are exacerbated by a
    series of cascading stop orders being triggered.

    For a review of the current GLOBEX policy governing these issues, see the
    following link:

  2. CalTrader

    CalTrader Guest

    Too little, too late.

    The Merc should have had this in place LONG ago. Historically their management has IMHO been reactive rather than strategic. This behavior is symtomatic of the problems that in the past were inherent in their management structure: the smallest change to any business process was micromanaged by the membership.

    The IPO and management reorganization should have already allowed process improvements to move forward: these types of announcements reduce my confidence that there has truly been any positive change in their ability to act strategically.
  3. I fully agree with you my brother.

    There's also always the possibility of a deliberate "failure" instigated in order to make some people some profits.
    Regardless of all regulation. Just a thought.

    Sorry, but I don't like your signature. It's inappropriate. This was probably the most useful thread today, and we don't need this.

    ~The Scientist
  4. How do you get messages from the Globex control center? From what I can tell you have to have your own Globex ID (you have to be a broker, trading group etc...). Is there anyway for retail type customers to at least read what the GCC distributes?
  5. Good idea. :)
  6. Tea


    ....the more I think this spike was probably caused by a large trader moving his business from the pit to the emini and trying to fill an order in the emini the way he would in the pit.

    Perhaps the CME's new "Stops logic" will be something that slows down trading whenever futures gets way out of wack with the cash. Even a 30-second halt would allow arbitrage to take place. This would prevent a run on stops which then feeds the move. While no one likes disruption in trading - its better to not be able to make a trade (though you should be able to trade in the opposite direction like with other halts) - than having your trade filled and then busted after the fact with you holding an unwanted open position.

    A mini-halt would mimic what happens in the pit when a trade imbalance happens - everyone puts their hands down until they can figure out whats going on.

    Swing and position traders have to be able to have stops in the market that aren't hit by what is basically a glitch in the electronic system.

  7. MarkHyman

    MarkHyman Advanced Futures

    When something goes wrong at Globex, i will get an email, letting
    me know about the situation. If I am at my desk when I receive it,I will post it here on ET.
  8. TGregg


    Thanks Mark.
  9. CalTrader

    CalTrader Guest

    The signature is a comment on the quality of the postings here: many of them are obvious hacks or worthless. I will retain the signature until the quality of postings improves.
  10. TGregg


    Then why should the trades be busted? I'm not whining, nor did I have a position on during that drop. Nor am I saying that I know better than the folks who run Globex. I'm just trying to understand why they want to stand in the way of a market driven price movement. :confused:
    #10     Jul 16, 2003