Futures trade fiasco puts Dax in tailspin
By Helen Dunne, Associate City Editor (Filed: 21/11/2001)
THE German futures exchange Eurex was embroiled in a major row yesterday after it cancelled an unusually big trade, which left many of its members sitting on large losses.
The December futures contract on Dax, Germany's index of leading shares, dropped almost 800 points from an opening level of 5,143 within half an hour of a trader hitting the wrong buttons.
It is believed that the trader was intending to sell one futures contract when the market hit 5,180 but instead sold 5,180 contracts, which sent the market into freefall. It was unclear yesterday where he worked.
The dramatic move triggered many electronically programmed trades, set up to automatically sell futures contracts once they hit a certain level.
It also led to a major sell-off in the contract of Euro Stoxx, an index of leading European company shares. It opened at 3,807 but, within minutes, lost over 20 per cent to hit 2,985. Traders said that movements in the Euro Stoxx contract are very closely linked to the Dax contract.
Five hours after the massive sell-off in Dax contracts, Eurex announced that trades below 5,083.5 would be cancelled. However, it took a further two hours for confirmation that trades on Euro Stoxx would be cancelled below 3,726.
The news led to outrage among members of Germany's futures exchange, which is traded exclusively on electronic screens. One trader said: "This is un-bloody-believable. It is a complete mess."
They were angry because trades initiated as a result of the dramatic slump had not been cancelled, leaving them nursing hefty losses. There was also outrage at how long it took Eurex to announce its decision.
One trader said: "If they had left the initial mis-trade as it was, then I estimate it would probably cost the bank involved about £30 million. Instead, the bank has been saved and I and all the other members suffer."
It is understood that many traders took the opportunity to buy both indices when it hit such low points, and then sold them when the market recovered at a much higher level. In some cases traders sold futures contracts on other European stock markets and actual shares, as a hedge to protect themselves.
"I bought the market when it fell and then sold it when it reached a much higher level," explained one banker. "Now my first trade has been cancelled, but my second one hasn't because it was above the cut-off point. I have lost money and I am furious.
"The guy involved must have been an idiot. All through the trading process it says things like 'are you sure?' It is meant to protect us from making errors."
One Eurex insider said: "These guys are professional traders, they must have known this was a mis-trade and would be cancelled. They expected to profit from somebody else's error and now are complaining because they couldn't."
However, futures traders rejected suggestions that they had capitalised on somebody else's misfortune and pointed out that a recent mis-trade by a Lehman Brothers employee was not cancelled, even though it also led to a dramatic swing in the market. "How do we know when they are going to consider
it a mis-trade? Do they want us to sit on our hands?" said one.
A Eurex spokesman said: "It did not take a long time. We have to get the information but a company has to first register that it was a mis-trade. We informed the market as quickly as possible." |
