On Thursday, June 27, the S&P 500 index stood at about 2915; a week or so later, it was just below 3000, a gain of 84 points, or $4,200 per e-mini contract. Whoever bought the 420,000 e-minis on June 28 had made a handsome profit of nearly $1.8 billion.
Traders in the Chicago pits have been watching these kinds of wagers with an increasing mixture of shock and awe since the start of the Trump presidency. They are used to rapid fluctuations in the S&P 500 index; volatility is common, of course. But the precision and timing of these trades, and the vast amount of money being made as a result of them, make the traders wonder if all this is on the level. Are the people behind these trades incredibly lucky, or do they have access to information that other people don’t have about, say, Trump’s or Beijing’s latest thinking on the trade war or any other of a number of ways that Trump is able to move the markets through his tweeting or slips of the tongue? Essentially, do they have inside information?
Theoretically, market regulators are supposed to be keeping an eye on big trades such as these, to try to figure out whether they are just happy coincidences or whether there is something more nefarious afoot. And they say they do. But calls to the Chicago Mercantile Exchange, where the trades takes place, the Securities and Exchange Commission, which regulates the equity markets, and to the Commodity Futures Trading Commission, which regulates futures contracts, such as e-minis, were answered in different ways. Christopher Carofine, at the SEC, declined to comment. The CFTC did not respond to my inquiries, while a spokeswoman for the CME says the trades in question did not originate from a single source and they were of no concern.
There is no way for another trader, let alone an outsider such as me, to know who is making these trades. But regulators know or can find out. One longtime CME trader who has been watching with disgust says he’s never seen anything quite like these trades, not at least since al-Qaida cashed in before initiating the September 11 attacks. “There is definite hanky-panky going on, to the world’s financial markets’ detriment,” he says. “This is abysmal.” [Continue reading…]