The SEC has apparently found some direct connection between a single future trader’s actions and the flash crash that began 10 minutes later.
The SEC says that 10 minutes before stocks started plummeting, a single futures trader accounted for about 9 per cent of trading volume in the 500 e-mini futures contract, the most actively traded stock-index derivative contract.
But according to Reuters, Nasdaq executive vice president Eric Noll pointed to “unusually heavy” trading volume in the CME’s e-mini S&P futures contract for June expiration. The contracts are used to protect against or bet on changes in the underlying S&P 500 group of stocks. Duffy says the future trader’s trades were intended to protect or “hedge.”
“We are in contact with the folks that did the trade. There is no question that it is a bona fide hedger” and not someone intending to disrupt the markets,” he told the New York Times.
We spoke about the incident with traders last night and each one agreed that if the crash had been caused by any single trader, the SEC and the firm would release his or her name, blame him, get rid of him, and be done with it.
However when asked about the identity of the trader, Duffy said “We obviously won’t divulge that market information,” according to the New York Times.
Nasdaq executive vice president Eric Noll says that the trading in the E-Mini S&Ps happened just before the sudden downdraft in the U.S. equities markets, and triggered a previously undisclosed 5-second trading “lock” in the contracts at CME, Noll said.
Duffy, testifying yesterday in front of a House Financial Services panel, bragged about the 5-second trading lock technology, saying that CME has it in place to lock the price for 5 seconds and that all exchanges should follow CME’s lead and he’d be happy to help.
He said it’s “patented technology” by CME Group, but he would be “happy to give it to the exchanges without a cost,” according to the Wall Street Journal.
Noll said that after the lock expired, trading in CME’s e-minis climbed rapidly, followed by a similar gain in equities. So maybe because the 5-second paused wasn’t disclosed and wasn’t expected, market volume quickly flooded and added to irregularities.