Reuters CBOT Probes Big Error in Dow Futures Thursday July 3, 2:10 pm ET By Ros Krasny CHICAGO (Reuters) - The Chicago Board of Trade, the No. 2 U.S. futures exchange, said it is investigating a huge trading error in its mini Dow Jones futures contract (YMU3) on Thursday that briefly sent the entire U.S. stock market reeling. ADVERTISEMENT Trading sources said a large futures commission house entered an order to sell 10,000 contracts of mini Dow futures instead of the intended 100 contracts. With average daily trading volume of about 48,000 contracts in June, the mini-Dow futures contract -- which is traded electronically on the CBOT's a/c/e platform -- plummeted when hit by the supersized sell order. "We are investigating as a matter of course. I don't really have anything more to report at this stage," said CBOT spokeswoman Laura LaBarbera. Selling signals radiating out of the mini-Dow contract quickly dragged down the Dow Jones Industrial average (CBOT:^DJI - News) about 50 points, and hit S&P 500 futures and cash indexes as well. "Mini-Dow futures are not build to absorb that kind of action," said Kevin Pendley, president of CharTable Research, who trades mini stock index futures at the CBOT and at the Chicago Mercantile Exchange, the largest U.S. futures exchange. The selling hit just when stocks were mounting a rally on the back of report showing a surprisingly strong result for the U.S. services sector in June. "There was sudden, intense volatility with no news -- it certainly acted like there was some kind of error," Pendley said. All-electronic mini stock index futures have been a huge growth area for the Chicago exchanges, attracting interest from day traders and individual investors and increasingly from institutions attracted to their liquidity. CBOT mini-Dow futures typically trade much larger volume than the exchange's original DJIA futures, where the contract size is twice as large. Floor traders at the CBOT said the ability of the massive error to slide through, unchecked, showed a potential dark side of electronic trading -- although big errors have been made in traditional open-outcry trading as well. MISTAKE BRINGS TO MIND OTHER SCREEN-TRADING BLUNDERS In October 2002, a trader at Bear Stearns Cos. Inc. (NYSE:BSC - News) entered an erroneous order to sell $4 billion worth of stocks 20 minutes before the closing bell, fueling an already tumbling market. Bear Stearns said the order was the result of a "clerical error" and should have been entered as $4 million. In December, the New York Stock Exchange (News - Websites) released a memo reminding members of their responsibility to guard against such orders, saying a number of erroneous orders had been sent to the exchange through electronic order entry system. At the time, the NYSE said many of the orders were the result of human mistakes or defective software that sent orders for an incorrect number of shares or resent stock orders from the previous trading day. The No. 1 U.S. stock exchange reminded firms they must have an electronic order entry system in place that limits who can use the system and that can limit or prohibit orders that exceed a firm's current credit. (Additional reporting by Nicole Maestri) ((Reporting by Ros Krasny; Editing by Andre Grenon; Reuters Messaging: ros.krasny.reuters.com@reuters.net; e-mail: ros.krasny@reuters.com; tel: 312-983-7327)
If it was an error they would cancel. If they don't then they are cleaning the stops in that area for preparing a big move ... they used to do that on french futures market hee hee and there were no error ! It became rare but that wasn't so rare a few years ago.
I agree with most of the opinions already expressed. The biggest frustrating thing about this is that there is no way, as a trader, to plan for or avoid this shit. Their decisions are entirely arbitrary. What sucks the most is that CBOT is screwing themselves. What they most obviously need is liquidity. However, there is no way in hell that arbitrageurs are going to step in and buy when there is a possibility that their trades will be busted.
i watched the spike down today. Qcharts showed the correct prices. Yet my direct es order entry platform (es broker) did not. The order entry system's prices were 2-5 minutes delay/late. I assume these prices were globex prices. I called my broker who said I was the only one who had delayed price problems. It was my cable modem. I said no. Qcharts had current prices-- time & sales. My question is what other direct es/nq brokers/platforms had the same price delay? IB?? FFast Trade?? Trading Technologies?? Jtrader?? Path?? This is important for all to know which system's prices to trust; your charting prices or es--globex--broker's prices. I noticed only one other person, misctrader, made mention about late quotes using IB. I would think we all get prices from generally the same place, i.e., globex, so which other order entry platforms had late prices during the spike??
saschebr, Very nice analysis. And an absolutely transparent move. This reminds me of someone recently saying here that we are all masters of the last tick while humility lies within the next tick. Best wishes. Bruce
It was interesting reading the chat log. Fruity Pebble was precient with his guess of an order error. I would have been looking for news of a terrorist strike or something like India and Pakistan nuking each other.
Well, I use IB and I lost all of my quotes for a few minutes. That includes futures, stocks, and options. Also, I just want to add, that the only way to avoid such insane market swings is to NOT pamper the guy who is the cause. If you pamper him and bust his trades then what incentive does he have to make certain that it never happens again?
I was looking at the CBOT webpage to find out any more info on the debacle today, and found they have a twice daily "market commentary" section, here's what it had for this afternoon Closing Stock Index Futures Report for Thursday, 7/3/2003 Stock index futures closed lower before the long holiday weekend, with dour employment data causing sellers to emerge. The June employment report set the tone for a poor session. Non-farm payrolls fell 30,000, and the unemployment rate jumped to 6.4%, the highest in nine years. The latest weekly claims for state unemployment insurance showed an increase of 21,000 to 430,000. It was the first increase in new claims in four weeks and the 20th consecutive week above 400,000, the largest such stretch since the 1990-91 recession. However, there was a dose of better economic news that incited a brief, knee-jerk rally that failed to hold. The June Institute of Supply Management's non-manufacturing index surged to 60.6, much higher than expected. Conditions were extremely volatile after all the data reports were released and dealers were placing big orders on both sides of the market in confusing fashion. (NO SH*T) Bears were able to retain control of the market through the end of the shortened session after the excitement died down and participants decided not to take on any event risk ahead of the long holiday weekend. The market is closed Friday for the July 4 holiday and faces no economic news of interest when participants return on Monday. Contract Settlement Change CBOT® Sep DJIASM 9035 Dn 92 Funny how there's no mention of the big error, CBOT wouldn't want to admit any problems with their great electronic platform. As an ex-floor trader (and someone who believes the trading floors will all be gone pretty soon) I know the guys in the S&P pit at the CME are laughing their asses off as they sip on their cocktails at Limit Up trying to determine what color Hummer to buy with their profits !!!