TAIFEX flash crash prompts change

VOLATILE MOVEMENT:Futures pricing fell 378 points as more than 2,000 investors traded at least 9,000 futures during the first minute of trading on Thursday

By Ted Chen  /  Staff reporter

The Taiwan Futures Exchange (TAIFEX) yesterday said it would create a new trading mechanism to prevent a repeat of Thursday’s flash crash.

The exchange said it would join industry associations and experts in devising a mechanism that would automatically cancel orders when prices have moved too far from investors’ ask and bid prices.

The exchange said the mechanism is needed to cope with investors’ increasingly complex trading strategies, as many are operated by automated programs that execute stop-loss orders in reaction to market movements.

The mechanism is to be put into place next year at the earliest, the exchange added.
The remarks came a day after this month’s TAIEX futures — which use the spot market’s benchmark gauge as the underlying index — fluctuated more than 1,000 points in just one minute after the market opened at 8:45am.

TAIFEX said it launched an investigation into the incident and came to a preliminary conclusion that no market manipulation practices were involved.

During the first minute of Thursday’s session, futures pricing fell 378 points to 10,042 as the performances of neighboring Asian markets prompted reactions from local investors, the exchange said.

Pricing movements were especially volatile in the beginning of the session, as investors with opposing outlooks placed market orders within a wide range of ask and bid prices, it said.

Futures prices again fell sharply by 692 points to 9,408, then fluctuated between 9,408 and 10,100.
The sudden drop triggered a number of automated stop-loss orders to sell futures contracts at the lowest market price, causing President Securities Corp (統一證券) to lose NT$20.82 million (US$688,948).

The bout of volatility led to a combined loss of NT$6 million for 14 other investors, TAIFEX said.
During the one-minute period, more than 2,000 investors traded at least 9,000 futures contracts, bringing profits for some and losses for others, TAIFEX said, declining to provide a breakdown of affected retail and institutional investors.

The flash crash was an isolated incident, and the exchange’s probe found that the computerized trading system functioned normally that day, with no signs that it had been hacked, TAIFEX chairman Liu Len-yu (劉連煜) said.

Additional reporting by CNA

2017期貨跌停