'Double witching' sends market haywire on busiest trading day ever

The FTSE 100 was sent swinging wildly yesterday morning when Stock Exchange computers were swamped by derivatives traders looking to cash in bets on the UK market.

The surge of activity caused chaos, overwhelming many systems, and sent the index of leading shares up 250 points in a few minutes, before it came crashing back down more than 300 points. It eventually settled up 46.6 at 3,860.1.

It was the busiest day's trading ever in London, with 5.3 billion shares changing hand, 1.2 billion of them within the space of 20 minutes yesterday morning, when a futures contract on the FTSE 100 expired.

The period between 10.10am and 10.30am is known, and feared, as the "double witching", taking place every three months. Private investors are routinely advised to steer clear of the market on such days, and brokers expect volatility, but yesterday's swings were the wildest in memory.

At various points during the frenzy, Barclays shares were up 38 per cent, Tesco was up 30 per cent, and Schroders was up 24 per cent.

Stories swept the City of investment banks who made or lost tens of millions of pounds in the space of a few moments. CSFB was said by most dealers to have been particularly active, as were Merrill Lynch and Deutsche Bank. The worst hit trading desks could have lost up to £100m, according to some estimates.

The FTSE 100 futures contract which expired yesterday had been trading on Liffe, the derivatives exchange, for months. Buyers of the contract had paid a price that reflected the level of the FTSE 100 at the time of purchase. Theywin or lose according to the difference between the purchase price and the expiry price. The expiry price is calculated by the average level of the index in the 20 minutes before 10.30am.

Most of yesterday's trading in the FTSE 100 shares was done by aribtrageurs at investment banks and hedge funds. They exploited small differences in the price of the futures contract and the real index at a number of points over the past few volatile weeks, expecting to make a profit when the two converged.

Many had sold real shares that they needed to buy back before 10.30am. The London Stock Exchange was warned on Thursday that several big trading desks would need to carry out huge trades in the minutes leading up to the expiry.

The Exchange said none of the trades would be cancelled, that it was happy it had presided over an orderly market, and that all trades were carried out efficiently by its computers.

However, it did respond to criticism from some dealers, who found trading screens not able to give up-to-date information. Chris Broad, head of broker services, said it would launch an investigation into the systems used by information re-sellers.

Mr Broad said: "We know, because we are religious about this, that our information systems were, at worst, 200 seconds slow. Not every trader gets its information direct from us but by other routes."

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Day In a Page

Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea