2010-05-12 07:06:00
Lone Trader Identified As Possible Catalyst For Last Week's Market Crash
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The investigation into why the markets fell so violently last Thursday continues.
At first, it was thought that the cause of the market crash (the DJIA fell about 1,000 points intraday, catching pretty much everyone by surprise) was a single trader at Citigroup, who may have pressed a "B" on his keyboard instead of "M" (Billion instead of Million).
This "fat finger" theory has widely been discounted now, as it appears as though the story of the clumsy Citigroup trader was purely make-believe.
Was there some other kind of a "glitch" involved? Did a mild mid-day downturn in the markets turn into something more worse thanks to thousands of computerized sell orders all going off at once? Did the bids just disappear on Thursday afternoon? Or was there something more sinister afoot, such as possible hacker activity?
According to the New York Times, there is a new potential culprit for the mini-crash - a lone futures trader.
According to the NYT, regulators are looking into whether or not a single trader could have been the catalyst for the market collapse last Thursday.
According to Gary Gensler, chairman of the CFTC, the futures trader (unidentified) "accounted for about 9% of trading volume in the most actively traded stock-index derivative contract, known as the 500 e-mini futures contract."
Gensler noted that all of the trader's orders were sell orders, and that the futures index began to really plummet as soon as these trades started to go through.
According to Terrence Duffy, executive chairman of the CME Group, this trader had no intention of disrupting the markets, and that they were a "bona fide hedger".
This theory would have the single trader executing his trades, dragging the markets lower, and then many more sell orders following close behind as the market continued to sag. This, in theory, may have created the crescendo of selling that saw the DJIA dip about 1,000 points.
The "investigation" into what caused the mini-crash last Thursday continues to twist and turn and head into all sorts of new directions. It will be interesting to hear what regulators end up determining as the reasons behind the crash.
Source: NYT.com - Market Inquiry Focuses on One Trader
Filed under: General Market News
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