Friday, May 7, 2010

Thurs’ Plunge – headlines “two-minute window in which 16 billion of the futures were sold”


· The SEC, the CFTC, the Treasury, and the Fed, said they were investigation what the SEC called “unusual trading activity that briefly took place Thurs afternoon”.  Exchange officials were systematically going through trading tapes, focusing on a surge in selling that federal officials said might have been set off by a single contract in Chicago.  Officials plan to examine whether securities professionals triggered yesterday’s stock- market plunge or exploited the turmoil to profit illegally.   CNBC/NYT/Reuters

· According to a person familiar with the probe, one focus is on futures contracts tied to the Standard & Poor’s 500 stock index, known as E-mini S&P 500 futures, and in particular a two-minute window in which 16 billion of the futures were sold.  Other market sources said the erroneous trading involved the IWD exchange-traded fund or the S&P 500 Mini.  BLK, which manages the IWD, said there was no unusual trading activity on Thurs.  CNBC 

· One official said they identified “a huge, anomalous, unexplained surge in selling, it looks like in Chicago,” about 2:45 p.m. The source remained unknown, but that jolt apparently set off trading based on computer algorithms, which in turn rippled across indexes and spiraled out of control.  CNBC/NYT

· High Frequency trading firms stopped trading during Thurs’ plunge, which may have exacerbated the downdraft; the Journal says the a bunch of firms simply shut their computers off as markets became too volatile.  This lack of liquidity could have added to the sharp declines.  WSJ    

· NDAQ - announced that The NASDAQ Stock Market had no technology or system issues associated with the trading that occurred between 2:00 and 3:00 p.m. ET Thurs. The NASDAQ Stock Market operated continuously and its close process ran successfully.  In addition, there is no indication at this time that a NASDAQ market participant experienced a technological failure in connection with this event.  NASDAQ has coordinated a process among U.S. Exchanges and therefore, pursuant to rule 11890(b), NASDAQ, on its own motion, will cancel all trades executed between 14:40:00 and 15:00:00 greater than or less than 60% away from the consolidated last print in that security at 14:40:00 or immediately prior. 

· C – Reuters says Citigroup only traded $9 billion worth of E-Mini futures contracts on Thursday; some sources had attributed the plunge on Thurs to a much larger erroneous trade in the E-Minis.  Reuters 

· Citi is defended by CME - Citigroup’s activity in futures markets “does not appear” to be irregular or unusual, CME Group, the world’s largest futures market, said in a statement today.  Bloomberg 

· How NYSE humans saved PG – per the WSJ – the NYSE is touting its move to switch trading in PG to human auction to prevent the situation from spiraling out of control (WSJ)   

· Accenture Plc, Exelon Corp. and Philip Morris International Inc. were among 27 U.S. stocks with at least $50 million in market value that dropped more than 90 percent as U.S. equities tumbled – Bloomberg 

· Exchange proliferation could be reviewed after Thurs - Federal regulators reviewing yesterday’s stock plunge will try to determine if the five-fold increase in the number of American equity exchanges has left them unable to manage the biggest surges in volume – Bloomberg 

· Market Volumes - More than 29.4 billion shares changed hands in U.S. markets yesterday, the most since October 2008. In addition to traditional exchanges such as the NYSE, rivals Bats Global Markets Inc. in Kansas City and Jersey City, New Jersey-based Direct Edge LLC handled millions of trades. About 2.6 billion shares traded on the NYSE, the lowest level relative to overall volume in three years – Bloomberg 

· Sen Kaufman said high frequency and algo trading appears to have played role in market plunge; "potential for giant high-speed computers to generate false trades, create market chaos reared its head again today"; Kaufman says regulatory oversight needs to be stepped up (Reuters)

· Sen M Warner said Thurs’ trading could have been “catastrophic” and said it demonstrates the need to step up regulatory oversight.  DJ

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