Error in E-Mini Dow Futures Creates Havoc at CBOT, CME
Thursday, July 3, 2003 05:36 PM ET Printer-friendly version
Dow Jones Newswires
CHICAGO -- An apparent mistaken sell order in Chicago Board of Trade e-mini Dow Jones Industrial Average futures created havoc and some wild market moves in financial markets at both the CBOT and the Chicago Mercantile Exchange in a shortened session Thursday.
CBOT traders reported the exchange announced all trades below 9018 in the Dow futures market would be canceled, although CBOT officials told Dow Jones newswires they were still investigating the matter and didn't have an official comment yet.
Market participants said an apparent order to sell about 10,000 contracts instead of 100 was put in by a firm by mistake in the e-mini market. The e-mini Dow futures trade electronically alongside the open-outcry market, and are half the size of the standard contract. They are priced at $5 times the index per contract, representing a notional value of about $45,000 at a level of 9000 in the Dow.
The CME also offers trading in e-mini stock index products, including the Standard & Poor's 500 and Nasdaq 100 futures markets.
Stock index markets at both exchanges were in rally mode after a stronger-than expected economic report -- the Institute of Supply Management's nonmanufacturing index -- when very suddenly, the market took a sharp turn for the worse.
It threw participants in trading pits at both the CBOT and CME off guard.
"At first I thought something really bad had happened, like some kind of terrorist incident," said David Graff, principal with Stat Capital. Mr. Graff is active in the e-mini Dow market and said, like many others, he happened to be caught long on the move.
He said he'd never seen anything like that happen in the e-mini Dow futures before, calling it "highly unusual."
The mistake created a ripple effect in the CME's S&P 500 and S&P e-mini contracts as well, as many of the same participants are active in both markets and also arbitrage between S&P and Dow futures markets.
Fast markets were briefly posted at the CME during the chaos, and even interest rate markets reacted by pulling off their lows when the equity futures markets started to melt down at both exchanges.
"Our first reaction was that it was related to some type of news event, the moves were so highly exaggerated," said Steve Leuer, a broker with Prudential Futures. "After everyone realized what had happened, it sort of stopped trade cold. People were pretty upset about getting stopped out long for no real reason."
CME officials said they aren't going to cancel any trades in their markets, saying the market made some erratic moves but not enough to create a widespread impact on market participants.
-By Kristina Zurla, Dow Jones Newswires; 312-750-4132 |
