Exposing The "Mystery" Of Last Week's "Massive" E-Mini Trade

Last Wednesday we reported that between 13:21:14 and 13:21:15 ET, an interval of less than two seconds, something snapped in the market, as both E-mini futures...

... and the SPY ETF exploded in volume and surged higher, as the S&P took out all time highs.


We further showed, that in those few seconds 2 million SPY shares went through (around $450 million)...


... and 32,000 e-mini contracts (around $3.5 billion notional) screamed through the markets.


As Nanex noted at the time, "a record, monster tsunami of 16,000 S&P futures contracts at once through 3 handles!" The block trade promptly soaked up half the available liquidity in the E-mini...

... and as Eric Hunsader put the move in context, in May 2010, Waddell and Reed sold 75,000 over 20 minutes, "and the first ~35,000 supposedly caused the flash crash (wink)."

This time, however, there was no danger of a flash crash - after all, the trade was a "buy", and set the stage for not just Wednesday's furious meltup, but for similar moves on Thursday and Friday.

* * *

Today, nearly a week later, the WSJ has given this record trade a second look in "Unraveling the Mystery of Last Week’s Massive E-mini Futures Trade", and summarizes what our readers already knew, namely that "$1.8 billion futures trade that fueled buying in the U.S. stock market on Wednesday was the biggest transaction of its kind all year, according to new analysis, and comparable in size to the “fat finger” trade said to have set off the May 2010 “flash crash.”

The WSJ cites an analysis by MayStreet LLC, according to which 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 Group Inc.

According to the report, "the trade was parceled 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."

Confirming the unprecedented size of the trade, 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.

While heavy bursts of volume in E-minis aren’t unusual, 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.”

Essentially, someone wanted to not only buy the market in size, but to let everyone in the market know it was doing so.

As MayStreet further notes, 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. The firm’s analysis is based on nanosecond-level trading data from CME Group Inc., which runs the exchange where the contract is listed.

The big question, of course, is who was behind the trade; alas that will remain unanswered.

As the WSJ correctly notes, "it is unclear who stood behind the trade. CME Group 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 intraday high.

hat 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 Group AG.

Or perhaps on behalf of a central bank: by now it is common knowledge that both the BOJ and SNB directly purchase equities in the open market, while the Fed has traditionally done so using intermediaries such as Citadel.

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

And rush in they did: in the hours and days following the trade, both the S&P and Dow Jones hit daily record highs, which have since sent the Dow Jones Average to within 200 points of 20,000.