How the biggest E-Mini futures trade of 2016 sent the market soaring

The analysis by MayStreet, a market data firm, shows that an unknown buyer on Dec. 7 purchased around 16,000 E-mini S&P 500 futures contracts at 1:21 p.m. New York time.

“It was a massive trade and it happened quickly,” said Mehmet Kinak, head of electronic trading at T. Rowe Price.

The trade occurred after muted morning gains by the stock market, which then soared in the afternoon after the transaction, with the S&P 500 closing at a fresh record of 2,241.35 on December 7 and then extending gains into December 8 and 9.

The trade was parcelled into scores of individual transactions, but raw data show that all of them took place at the same nanosecond and fell within boundaries indicating where one trade ends and the next trade begins, according to the analysis. That is a strong indication they were all part of one big trade, MayStreet said.

Taken together, the purchase was more than double the size of the second-biggest E-mini trade in 2016, in which someone sold about 7,000 contracts, or around $ 645 million, on Jan. 15, MayStreet said.

E-mini contracts are used by traders to bet on or hedge against future moves in the S&P 500 stock-market index, and large moves in the price of E-minis can have knock-on effects in the stock market.

Wednesday’s order sparked a frenzy of superfast trading as other market participants piled in and a total of $ 3.4 billion worth of E-minis changed hands within two seconds, including the original transaction, MayStreet said. The firm’s analysis is based on nanosecond-level trading data from CME Group, which runs the exchange where the contract is listed.

It is unclear who stood behind the trade. CME said it couldn’t comment on “the specifics of any particular order”. Traders and analysts say the most likely explanation is that an algorithm triggered the large purchase when the E-minis hit a key threshold. Trading records show the buying began just as E-minis reached 2,225 points, a round number, as well as an intra-day high.

That suggests a computer program unleashed the buying, perhaps on behalf of a bank that needed to automatically hedge a trade in stock-market derivatives, according to Joshua Lukeman, a managing director in the equities trading division of Credit Suisse.

“It felt like the beginning part was electronic because it went through the pipe so quickly,” Lukeman said. Then there was a “snowball effect of other folks rushing in,” he added.

Heavy bursts of volume in E-minis aren’t unusual, but they tend to take place when the stock market closes, at 4 p.m. ET, not in the middle of the day. The one-minute interval including Wednesday’s early afternoon trading frenzy was the fifth-busiest minute of the year in E-minis, while all of the other top 10 highest-volume minutes took place right around 4 p.m., according to MayStreet.

That makes Wednesday’s event an “anomaly,” said Michael Lehr, the firm’s co-founder. “A large intraday movement is unexpected.”

It wouldn’t actually cost a company $ 1.8 billion to put on a futures trade the size of Wednesday’s transaction. A firm seeking to buy futures must make an upfront payment, called initial margin, and then it either earns money if the price of the contract rises or it needs to make additional payments if the price falls. Initial margin for a $ 1.8 billion E-mini trade is about $ 83 million, according to a CME spokeswoman.

Big trades in the E-mini contracts have drawn attention before, most notably a botched trade that is said to have contributed to the flash crash of May 6, 2010, in which the Dow Jones Industrial Average dropped nearly 1,000 points within minutes before regaining much of its value just as quickly.

A September 2010 report by federal regulators said a key factor in the flash crash was a massive E-mini trade, in which a mutual fund firm sold 75,000 of the contracts. The firm accidentally instructed its trading program to dump them all in a series of sell orders over 20 minutes, rather than spreading the sell orders out over a much longer time period, according to the joint report by the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The regulators didn’t name the firm, but media reports have identified it as Waddell & Reed Financial in Overland Park, Kan. Waddell hasn’t confirmed whether it was the firm in the report, though it released a statement shortly after the flash crash saying it had been trading E-minis that day.

The total size of the huge E-mini sale was about $ 4.1 billion, and in the 13 minutes between when the mutual fund firm started selling the contracts to the nadir of the flash crash, the firm’s program sold approximately $ 1.9 billion worth of E-minis, according to the joint SEC-CFTC report.

Write to Alexander Osipovich at

This article was published by The Wall Street Journal

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