Chicago Mercantile Exchange Invalidates Some E-Mini Trades

The Chicago Mercantile Exchange, the biggest U.S. futures exchange, invalidated some transactions of futures contracts tied to the Standard & Poor’s 500 index Monday after the electronically traded contract tumbled 9.5 points in four seconds.

The market in general was slumping at the time of the invalidated trades. The S&P; 500, up more than 17 points earlier in the day, closed up less than 6 points, or 0.6%.

The incident came less than two weeks after the Chicago Board of Trade had an error in electronic trading of contracts linked to the Dow Jones industrial average. The exchange, the second-biggest U.S. futures market, invalidated some of those transactions July 3.

On Monday, so-called E-mini S&P; 500 contracts fell to 990.5 from 1,000 at 2:08 p.m. EDT, said Anita Liskey, a spokeswoman for the Chicago Merc.

But the decline wasn’t a result of trades placed in error, she said.

“We believe the drop was triggered by a series of cascading ‘stop’ orders that were input at various price levels during a period of relatively thin market activity,” Liskey said. A stop order is a request to sell that is executed once the price reaches a certain level.

Liskey said the exchange has specific policies to deal with situations of cascading orders, to keep market moves from becoming excessive. In Monday’s case, all contract trades at 996 and below were invalidated, she said.

E-mini S&P; 500 contracts are the most active U.S. stock index futures. More than 716,000 contracts changed hands a day in June. Futures are agreements to buy or sell an asset on a certain date at a certain price. Index futures are settled in cash.

Each E-mini contract, which is traded only by computer, is worth $50 times the S&P; 500 index, which closed Monday at 1,003.86.