By Matthew Goldstein and Jonathan Spicer
NEW YORK, May 10 (Reuters) – U.S. securities regulators have yet to come to any hard conclusions about the cause of last Thursday’s lightning-fast plunge in U.S. stock prices.
But the Securities and Exchange Commission and other agencies continue to focus a good a deal of attention on the trading in a popular futures contract that is linked to the Standard & Poor’s 500 index, said people familiar with the investigation and several securities industry employees.
One thing regulators are looking into is the impact trading in the e-Mini future contract had on some of the underlying stocks in the S&P 500, said these sources. The e-Mini is a widely traded futures contract popular with hedge funds and high-speed trading firms.
Some traders use the e-Mini as part of an arbitrage strategy that tries to capture the change in prices between the futures contract and a basket of underlying stocks that make-up the S&P 500, said several futures traders. This strategy, sometimes referred to as an e-Mini lead/lag trade, is popular with some high-frequency trading firms.
High-frequency firms are ones that rely on algorithimic-driven trading strategies to move quickly in and out of stocks and options. Many on Wall Street and on Capitol Hill are blaming automated trading strategies such as HFT for exacerbating the market plunge.