E-mini

CME noted in a statement that the 75,000 contracts accounted for just 1.3% of the total volume of E-mini contracts that day.

Debate Swirls Around Tom Lauricella 2010

Waddell, it turned out, had placed an order to sell a total of 75,000 E-mini contracts — futures contracts the mimic the movement of the Standard & Poor's 500-stock index — using an algorithm offered by Barclays Capital, according to people familiar with the trade.

Debate Swirls Around Tom Lauricella 2010

A CFTC official called the execution of the trade "unfortunate" and said it "effectively resulted in the erosion" of liquidity in the E-mini contract, which was exacerbated by other market players.

How a Trading Algorithm Went Awry Tom Lauricella 2010

At 2: 32 p.m., a trader at Waddell & Reed placed a huge order to sell E-mini futures contracts, which mimic movements in the S & P 500-stock index.

How a Trading Algorithm Went Awry Tom Lauricella 2010

CME Group Inc., operator of the futures exchange, questioned the report's focus on the large E-mini trade.

How a Trading Algorithm Went Awry Tom Lauricella 2010

This feedback loop of selling by Waddell, high-frequency traders and others helped drive the E-mini price down 3% in just four minutes.

How a Trading Algorithm Went Awry Tom Lauricella 2010

According to CME Group, the value of CME E-mini S&P 500 futures traded each day is more than four times the combined volume of SPDR S&P 500 ETF and iShares S&P 500 Index ETF.

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Equity index volume averaged 4.7 million contracts per day, up 83% from the year earlier, and included August average daily volume of 3.9 million contracts for the E-mini S&P futures and options.

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But Waddell's desk opted for an algorithm designed to sell 75,000 E-mini contracts at a pace that would range up to 9% of trading volume — and not take into account other factors.

How a Trading Algorithm Went Awry Tom Lauricella 2010

A key feature of high-frequency trading firms is that they quickly exit trades and, by 2: 41, they were also aggressively selling the E-mini contracts they had bought from Waddell, which was still trying to sell the remainder of its contracts.

How a Trading Algorithm Went Awry Tom Lauricella 2010