Slide 1
Slide 2

Agenda

1.May 6th General Market Context

2.Preliminary Findings

a)Securities

b)Futures

3.Initial Q&A

4.Next Steps and Analysis

a)Securities

b)Futures

c) Joint

5.Closing Q&A
Slide 3

General Market Context

• Economic News

– Uncertainties in Europe

– Higher CDS spreads

– Broad decline in U.S. equity market prior to 2 p.m.

– Higher volatility index

• Market News

– 10-year Treasury yield fell

– Price of gold rose from the open to the 1:30 p.m. 

close

– After 1:00 p.m., the Euro declined further against U.S. 

Dollar and the Japanese Yen
Slide 4

Figures 2 & 3: CBOE SPX Volatility Index Daily and Intraday Levels
Slide 5

Figure 4: Ten-Year U.S. Treasury Note Yield
Slide 6

Figure 6: U.S. Dollar/Euro and Japanese Yen/Euro Exchange Rates on 

May 6, 2010
Slide 7

Afternoon of May 6

• 2:00 p.m. to 2:30 p.m. increase in liquidity 

replenishment points

• Existing market decline accelerated and 

implied volatility sharply increased

• Declarations of self help

• Dislocation of liquidity in E-mini S&P 500 

futures contract

• Rebound begins with CME Stop Logic 

functionality
Slide 8

Agenda

1.May 6th General Market Context

2.Preliminary Findings

a)Securities

b)Futures

3.Initial Q&A

4.Next Steps and Analysis

a)Securities

b)Futures

c) Joint

5.Closing Q&A
Slide 9

Preliminary Findings* - Securities

A.Market Impact

B. Examples of Select Securities

C.Broken Trades

D.Exchange-Traded Funds

E. Liquidity Issues

* Based on initial data and subject to change
Slide 10

The Securities Markets on May 6th 2010

2:00 - 3:00
Slide 11

Summary of Major Index Moves

S&P 500 

Index

S&P 500

ETF

DJIA

Index

E-Mini

Futures

2:00 -1.78% -1.81% -1.51% -1.78%

2:40 -4.35% -4.45% -3.91% -4.43%

2:45-2:47 -8.58% -10.12% -9.16% -9.18%

3:00 -4.90% -5.05% -5.00% -5.12%

4:00 -3.30% -3.37% -3.26% -3.48%

Lows from Previous May 5th Close (4:00pm)
Slide 12

May 6th Lows for Individual Securities

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

14:0014:1014:2014:3014:4014:5015:00

Low Return from May 5th Close (%)

S&P 500

Stock A

Stock B

14:44:56

14:56:27
Slide 13

Distribution of Lows from 2:40 – 3:00 pm

Total # 

trades

Total

volume

Total

volume ($)

All trades 7,135,104 1,995,000,637 56,651,582,692

Losses 5,013,724 1,358,709,226 38,047,617,508

0% to -10% 4,912,125 1,324,448,213 37,383,122,363

-10% to -20% 63,890 22,171,745 522,444,343

-20% to 30% 12,923 4,077,881 85,328,519

-30% to -40% 6,112 2,317,245 30,461,333

-40% to -50% 2,519 767,393 9,641,261

-50% to -60% 1,682 472,624 8,334,944

-60% to -70% 1,056 370,920 4,328,898

-70% to -80% 798 292,061 2,245,851

-80% to -90% 1,109 237,259 1,152,480

-90% to -100% 11,510 3,553,885 557,516
Slide 14

May 6th Highs for Individual Securities

0%

50%

100%

150%

200%

250%

300%

14:0014:1014:2014:3014:4014:5015:00

High Return from May 5th Close (%)

Sample ETF

Others at

$100,000
Slide 15

Preliminary Findings* - Securities

A. Market Impact

B.Examples of Select Securities

C.Broken Trades

D.Exchange-Traded Funds

E. Liquidity Issues

* Based on initial data and subject to change
Slide 16

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

14:46:3014:46:4514:47:0014:47:1514:47:3014:47:4514:48:00

0

20

40

60

80

100

120

140

Volume (Thousands)

Stock A: 90 Seconds of Trading

Bids

Offers
Slide 17

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

14:47:4014:47:4514:47:5014:47:5514:48:0014:48:0514:48:1014:48:15

0

5

10

15

20

Volume (Thousands)

Stock B: A 10-Second Bounce

Bids

Offers
Slide 18

Preliminary Findings* - Securities

A. Market Impact

B. Examples of Select Securities

C.Broken Trades

D.Exchange-Traded Funds

E. Liquidity Issues

* Based on initial data and subject to change
Slide 19

Distribution of Lows from 2:40 – 3:00 pm

Total # 

trades

Total

volume

Total

volume ($)

All trades 7,135,104 1,995,000,637 56,651,582,692

Losses 5,013,724 1,358,709,226 38,047,617,508

0% to -10% 4,912,125 1,324,448,213 37,383,122,363

-10% to -20% 63,890 22,171,745 522,444,343

-20% to 30% 12,923 4,077,881 85,328,519

-30% to -40% 6,112 2,317,245 30,461,333

-40% to -50% 2,519 767,393 9,641,261

-50% to -60% 1,682 472,624 8,334,944

-60% to -70% 1,056 370,920 4,328,898

-70% to -80% 798 292,061 2,245,851

-80% to -90% 1,109 237,259 1,152,480

-90% to -100% 11,510 3,553,885 557,516

Broken

Trades
Slide 20

Low-Priced Broken Trades over Time

0

2000

4000

6000

8000

10000

12000

Before 2:40 2:40-2:45 2:45-2:50 2:50-2:55 2:55-3:00 After 3:00

< 14:40 Price < $0.05

43% of Broken Loss 

Trades were < $0.05
Slide 21

Broken Trades and Short Sales

0

2000

4000

6000

8000

10000

12000

Before 2:40 2:40-2:45 2:45-2:50 2:50-2:55 2:55-3:00 After 3:00

< 14:40 Price < $0.05

43% of Broken Loss 

Trades were < $0.05

ShortsShortsShortSh.

70-90 % of Broken 

Trades < $0.05 are 

Shorts
Slide 22

Securities with Broken Trades

Market Broken

Total % Total % 

All Exchange-Traded Securities 7,878 100.0% 326 100.0%

• Primary Listing on NYSE 3,277 41.6% 56 17.2%

• Primary Listing on NASDAQ 2,946 37.4% 42 12.9%

• Primary Listing on ARCA 1,088 13.8% 225 69.0%

• Primary Listing on Amex 567 7.2% 3 0.9%

• Component of DJIA 30 0.4% 0 0.0%

• Component of S&P 500 500 6.3% 12 3.7%

• Component of Russell 2000 2,000 25.4% 30 9.2%

• Exchange-Traded Fund 838 10.6% 227 69.6%

326 Securities 

Affected

Almost 70% of

Affected Securities 

are ETFs
Slide 23

Preliminary Findings* - Securities

A. Market Impact

B. Examples of Select Securities

C.Broken Trades

D.Exchange-Traded Funds

E. Liquidity Issues

* Based on initial data and subject to change
Slide 24

May 6th Lows for Exchange-Traded Funds

-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

14:0014:1014:2014:3014:4014:5015:00

Low Return from May 5th Close (%)

27% of ETFs

had Broken 

Trades, most at 

stub quotes
Slide 25

Asset Classes of ETFs with Broken Trades

Broken ETFs and ETF Universe

0

10

20

30

40

50

60

70

80

90

Large ValueLarge Blend

Bear Market

Large Growth

Equity Energy

Foreign: Lg. Med, Sm 

Health

Technology

Financial

Small Blend, Growth

Mid-Cap Blend

Mid-Cap Growth

Mid-Cap Value

Asia, Europe, Lat. Am.

Consumer Discretionary

Consumer Staples

Industrials

Small Value

Utilities

Communications

Natural Res

Diversified Emerging Mkts

Long-Short

Real Estate

Intermediate Government

World Bond

Convertibles

# ETFs Broken

Total ETFs

Low proportion of 

bond ETFs were 

affected
Slide 26

Sample Exchange Traded Fund

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

14:4414:4514:4614:4714:4814:4914:5014:5114:5214:5314:5414:5514:5614:5714:5814:59

0

15

30

45

60

75

90

Volume (Thousands)

S&P 500 

Low

Low Price

= $0.15
Slide 27

Preliminary Findings* - Securities

A. Market Impact

B. Examples of Select Securities

C.Broken Trades

D.Exchange-Traded Funds

E. Liquidity Issues

* Based on initial data and subject to change
Slide 28

Liquidity and Order Routing

1. NYSE Liquidity Replenishment Points (LRPs)

2. Self-Help Declarations against Arca

• Nasdaq: 2:37

• Nasdaq OMXBX: 2:39

• BATS: 2:49

• NSX: 2:51
Slide 29

NYSE Liquidity Replenishment Points (LRP)

May 6th vs.2010 Average

0

200

400

600

800

1000

1200

9:45 10:15 10:45 11:15 11:45 12:15 12:45 13:15 13:45 14:15 14:45 15:15 15:45

Number of Stocks with LRP Events > 1 Sec

2010

Average

Peak on

May 6th

May 6th

Mid-point to Half-Hour Intervals
Slide 30

May 6th Volume from 2:00 – 3:00

Volume Spikes

During Market 

Decline

S&P 500

Low
Slide 31

Top 10 Liquidity Providers

% Volume Provided/Taken

Stays ~Constant
Slide 32

Agenda

1.May 6th General Market Context

2.Preliminary Findings

a)Securities

b)Futures

3.Initial Q&A

4.Next Steps and Analysis

a)Securities

b)Futures

c) Joint

5.Closing Q&A
Slide 33

Analysis of E-mini S&P 500 Futures 

on May 6

• Liquidity Dislocation

• Market Volume and Price Movement

• Role of Liquidity

• Balance of Trading
Slide 34

Liquidity Dislocation

• An imbalance of orders on the sell side 

resulted in prices falling. 

• The depth of the order book declined, as 

prices fell.

• The price decline induced buyers to enter 

the market, coinciding with the CME 

Globex Stop Logic event. 
Slide 35

E-mini S&P 500 Futures Volume 

and Price Movement

• Higher than Normal Volume

– 2.6 times average volume

– 5th highest daily volume in 5 years

– Spike in volume between 2:40 and 2:49 p.m.

• High Price Volatility

– Daily price range of 112.75 points

– 2nd highest range in 5 years

– 59.75 point range between 2:40 and 2:49 p.m.
Slide 36

Figure 29: CME E-mini S&P 500 Futures Trade Price and Volume
Slide 37

Role of Liquidity

• Liquidity reflects ease of buying/selling 

without exerting a significant price impact

• Liquidity cannot be directly observed

• Three indicators of liquidity

– High volume may indicate more liquidity

– Narrow bid-offer spreads may indicate more 

liquidity

– Greater order book depth may indicate more 

liquidity
Slide 38

Role of Liquidity

• High and Erratic Volume

– 10 times average volume between 2:30 and 3:00 

p.m.

– Possible execution deep into the order book

• Widening of Bid-Offer Spreads

– Minimum bid-offer spreads prior to Stop Logic 

event

– Widening and variable spreads just prior to and 

following Stop Logic event

• Imbalance and Decrease in Market Depth

– Less market depth on buy side

– Overall decrease in market depth after 2:45 p.m.

– Return to relative balance in orders after 2:45 

p m
Slide 39

Figure 30: Price and Trading Volume 

in the June 2010 E-mini S&P 500 Futures Contract
Slide 40

Figure 31: Bid/Offer Spread (in Ticks) and Price 

in the June 2010 E-mini S&P 500 Futures Contract
Slide 41

Figure 32: Bid/Offer Quantities: 

5th Best in the June 2010 E-mini S&P 500 Futures Contract
Slide 42

CME Globex Stop Logic 

Functionality

• Designed to stop a cascade of stop loss 

orders.

– A cascade is one stop loss order triggering 

another.

– Market pauses to prevent a cascade greater than 

6 points

– Triggered at 2:45:28 p.m.

• Reserve State Pauses Execution

– Five second hold

• Reserve State Exit

– Release if execution within 6 points, otherwise 

hold for additional 5 seconds

– Trading resumed at 2:45:33 p.m.
Slide 43

Large Trader Analysis

Buyer and Seller Transaction Volume

• Volume of 10 largest net sellers exceeds 

volume of 10 largest net buyers:

– 51,526 net buys vs. 72,186 net sells during 2:30-

2:45 p.m.

– 49,180 net buys vs. 67,544 net sells during 2:46-

3:00 p.m.

• Largest Net Seller

– Only entered orders to sell

– 9% of volume

– Position executed between 2:32 p.m. and 2:51 

p.m.
Slide 44

• Liquidity Providers (Active but Flat Positions)

– 2:30 to 3:00 p.m. review period

– Methodology to select providers of liquidity

– Six trading accounts

– 50% of early trading activity

– Decline of activity during volatile period

• Liquidity Takers (All Others: 4,573 accounts)

Large Trader Analysis

Liquidity Provision
Slide 45

Figure 33: Cumulative Volume of Transaction Sides of Liquidity Providers 

and

Liquidity Takers in the June 2010 E-mini S&P 500 Futures Contract
Slide 46

Summary of Findings—CFTC

• Broad-based desire for investors to reduce 

exposure to risky assets

• Liquidity Dislocation

– Rise in volume during price decline

– Imbalance of sell and buy orders

– Reduction in depth of order book

• Triggering of Stop Logic functionality

• Return to balanced order book and tight 

bid-offer spread
Slide 47

Agenda

1.May 6th General Market Context

2.Preliminary Findings

a)Securities

b)Futures

3.Initial Q&A

4.Next Steps and Analysis

a)Securities

b)Futures

c) Joint

5.Closing Q&A
Slide 48

A Framework for Next Steps and Analyses

External shock,

signal, or 

change in 

perception

Market 1

Cross-Market

Linkages

Inter-Market Feedback

Institutional

Investors

Market

Makers

Retail

Investors

Algorithmic

Traders

Market 2 Market 3

Creates New

Signals
Slide 49

Topics for Further Research

1. Where did the downward price pressure originate?

a) Price discovery, arbitrage and linkages between 

markets

b) Short sales and directional algorithms

c) Hedging existing holdings

d) Liquidating positions

2. What happened to liquidity?

a) Withdrawal of market makers, internalizers, highfrequency algorithms

b) “Trapped” liquidity: Declaration of Self-Help, LRPs
Slide 50

Topics for Further Research

3. What role did order types play?

a) Market Orders, Stop Loss Orders, ISOs

b) Stub Quotes

4. What explains the experience of ETFs?

5. Were there other contributing factors?
Slide 51

Data Context

National Best Offer

Offer

Books

Exchange Exchange Internalizer

National Best Bid

Bid

Books

Price

Trades

Orders

To Sell

Broker

Broker

Asset

Mgr

Hedg

e

Fund

Retail

Client
Slide 52

Agenda

1.May 6th General Market Context

2.Preliminary Findings

a)Securities

b)Futures

3.Initial Q&A

4.Next Steps and Analysis

a)Securities

b)Futures

c)Joint

5.Closing Q&A
Slide 53

Further Analysis—CFTC

• Review of special call on large traders and 

OTC swap dealers

• Review of trade-register data

• Review of electronic trading 

– High Frequency trading

– Algorithmic trading

– Pre-trade automated safety features
Slide 54

Further Analysis—Joint

• Study the linkages between correlated 

assets in equities (single stocks, mutual 

funds and ETFs), options and futures 

markets

• Focus on cross-market linkages in stock 

index products
Slide 55

Agenda

1.May 6th General Market Context

2.Preliminary Findings

a)Securities

b)Futures

3.Initial Q&A

4.Next Steps and Analysis

a)Securities

b)Futures

c) Joint

5.Closing Q&A