Ethanol and Kospi trading losses
Knight went down on a single system glitch. Buttonwood lost it all on a rogue trader in Ethanol futures in December. This product is uncharted territory for me, but I’m told its closely connected to other commodity futures such as corn. The trader had a reputation among other Ethanol traders. According to unconfirmed chatter his ethanol gamble was in line with his image.
Here’s the chart of the Jul Ethanol CBOT future, Buttonwoods graveyard.
Another product from the other side of the world. The Korean Kospi future. An apparent software bug in an algo active in the Kospi future rocked the market. Turnover jumped 30% and the open interest increased with 19.000 contracts. Algo sent a small buy order for 1 lot. Fine, but 100.000 of those small buy orders may be overdoing it.
At a certain moment 110.000 Kospi futures assembled together on the bid. Around 25.000 bids were filled. Weird thing is this whole algo gone mad lasted for over an hour. As one commenter points out, the value of the 25k futures is around 3 USD billion. The losses are estimated at USD 8 – 15 million. Pocketmoney for some banks. But for the involved market maker, Eclipse, probably a near death experience.
Graph from the entertaining Australian Investment Banker Cyclist. Unfortunately not in the same detail as the ethanol graph, but at least lots of colors.
the trading shop that had the software bug has been mentioned in this blog before… About buy 120k orders were sent in the market, contract value is about 15 trillion KRW (1.4 billion USD). Out of these, 25k contracts were filled, as a post-margin account the margin of about 30 billion KRW (28 million USD) was deposited to KRX the next day, unknown if the margin was covered by the client or the korean broker (securities house)…
what’s the scores on the doors?
‘This product is uncharted territory for me’
aren’t you a trader, how about looking up a chart and get into charted waters?
‘Here’s the chart of the Dec Ethanol CBOT future, Buttonwoods graveyard.’
what are we looking at? corn had massive spike mid-year due to drought, ethanol as a derivative followed course, then? trader was still quite long and got squeezed out year end?
@ 11.58: You’re making a small mistake here. The delta-value of these 25,000 futures is roughly USD 3billion. The margin to be lodged by their (very well known Dutch) clearingfirm was USD 375million. Taken into consideration the Kospi-move on Tuesday, this might have costed USD 8-15mio (depending on the way they traded out of this position). And yes, the firm has been mentioned in this blog before.
hmmm~ so the margin was covered by the clearing firm not the broker?, I know this Dutch firm does clear for many prop shops in Asia… interesting
@ 8:11: what has a broker got to do with anything here? The prop firm lost, and maybe the clearing firm as well… depending on whether they would go bust or not
@ 8:27 the dutch clearing firm is not a member of KRX as only korean securities and futures firms are members. If the prop shop were to go bust the margin call would have to be covered by the broker… did not know that the dutch firm had covered for the prop shop
🙂 Upodated yesterday
http://jobs.efinancialcareers.com.au/job-4000000001137324.htm
@9:10 That’s what I thought, that they would have to use a Korean broker. The Dutch firm would probably be the party where they borrow from though.
Apart from the loss I wonder what the consequences will be from the Korean regulator. They are notoriously anal about people breaking rules (like the 5000 open futures position limit).
Should the broker have enforced the limit by not allowing the trades into the market?
Seemed like the order sat in the market for an hour…Maybe they were bullish. Allard perhaps?
The futures limit is possibly per market participant, not per account? Otherwise you can just open accounts with twenty brokers and get twenty times the limit. That would mean the broker can only see part of your position, and therefore cannot check your orders before they go to market. Apart from that, people like to limit the number of checks at the broker level as that would be killing for latency.
What about if you bypass the broker router by creating your own? Might be illegal but certainly faster.
I guess we find out the full story in a couple of weeks time. If anyone is looking to jump ship there are a number of US firms looking to open up in Asia
@4:40 pm
What firms ?
IMC
Imc is not American and they’ve just closed office HK.
‘Seemed like the order sat in the market for an hour…Maybe they were bullish. Allard perhaps?’
you don’t fat finger into bullish trade of billions with capital of few million?
on a long enough timeline, the survival rate for everyone falls to zero
what does that have to do with fat finger trade details ?
@ 3:55 It is not checked per account but by the Investment Registration Certificate (IRC) given by the Korean Financial Supervisory Service, you can have mutliple brokers and many accounts but you are tracked by the KRX by the IRC.
Algo failed because of looping, they had to kill the daemon on client’s end as broker lacked control mechanism because orders did not go through broker’s check. Once the client gateway server was disconnected massive orders were already in, broker had to resort to KRX contingency system which is a really old computer and you can cancel orders manually one by one…
BTW IMC already trades in Korea
So long suckers
@4.40pm: Which firms are looking to open up in Asia? Sounds somewhat unlikely to me.
Maven trading looking to crush Asia
great guys at Eclipse ….. sorry to hear if it was them
according to yonhap news in korea eclipse realised a loss of 17 millio USD. can anyone confirm if they are going bust?
according to latest recruiter disappointment eclipse is business as usual… how much capital did they have to swallow a 17 million loss?
eclipse prob has AUD 50 mil working capital
“according to yonhap news in korea eclipse realised a loss of 17 millio USD. can anyone confirm if they are going bust?”
Link please.
there wouldn’t be a link if it was just on tele?
‘according to latest recruiter disappointment eclipse is business as usual’
recruiters are even worse than brokers, they are the scums of the scums
Actually they are quite hot and lovely
doesn’t take away the fact as to their feeding mechanism, worse than leeches
don’t you rely on brokers and retail flow??? Who is really the leach?? If not it would be mm versus mm.
what’s a leach? leech?
“there wouldn’t be a link if it was just on tele?”
Right. And someone here just happened to be watching a Korean news station at just the right time.
Faggot grammar nazi
I think you meant ‘Faggot spelling nazi’.
What nazi has to do with this news ?
leech, leach, whatever…. bunch of nancys nitpicking. you just need to be aware that mm’s are leeches… not the other way around, whatever it is you think. no reason to employ such people once computers have got it covered… i’d be learning c++ or similar if i was you….
‘Who is really the leach’
mm at level 1
broker at level 2
headhunter at level 3
?
‘not the other way around, whatever it is you think.’
other way around what ?
‘no reason to employ such people once computers have got it covered’
yes sure, your point? technology has made human physical effort redundant for hundreds of years, what are you gloating about this little bit?
‘i’d be learning c++ or similar if i was you’
i’d rather kill myself than become a techie programmer, kapish?
‘what’s a leach? leech’
he is a d(e)utch
What is RDD doing these days ?
growing old and senile
Whats Ralph Van Pot doing now….
growing old and senile?
i have too much money in the bank account dee dee deeh de dee dee
Heard one Maven trader in their cash tean was long TNT in anticipation of the UPS takeover. D’oh!
was it merger arb? how long on tnt? any shorts against it or long some puts at some strike?
you can’t just be long some shit without concrete stop loss.
Apparently you can
well, apparently you wouldn’t live to fight another day then
so how much did eclipse actually loose? any confirmed reports yet?
a stop loss wouldn’t have saved you here
market is losses so far is 5 – 10
Buy 10’s. where’s the offer now?
@12 size
Buy em
Apparently there are lawyers involved now as to who shoulders how much of the blame between eclipse and KB
of course there are lawyers involved, eclipse didn’t intend to have that many orders in the market/leave alone get executed on those, there must have been technical glitch and now lawyers can play on that technicality
To add some info: It was indeed KB Futures that had to cough up the margin obligation of USD 300mio and not the ‘well-known Dutch clearingfirm’.
Apparently it is indeed business as usual for Eclipse (only a bit less Netliq) and they can continue trading, which is good for them.
who is this ‘well-known Dutch clearingfirm’?
‘only a bit less Netliq’
didn’t they loose 10mil? did they have have 30mil netliq to begin with?
who are the shareholders to whom the 10mil loss is attributable to?
Mostly Tony, Julian and Jason, ex-optiver guys who started eclipse.
wishful thinking. they ain’t that profitable, not even close
well if they are up 10-15 mil each, then taking a 10mil hit would be rather game changing
@ Jan 18th 2.12am:
1) ABN Amro Clearing
2) ‘a bit less Netliq’ was somewhat cynical. Market would still be 5-15 according to the readers of this blog. My own market would be 12-18 btw.
‘Heard one trader in their cash tean was long TNT in anticipation of the UPS takeover. D’oh!’
They just hiring more guys. Business as usual.
anyone any idea who messed up in the kospi 257 put today?
How big was the error?
Hard to guess a potential loss. Someone fired in a huge amount of small lot bids at multiple price levels. Total bid size in market about 80,000 lots at one point, highest at a single price level about 15,000.
Started cancelling after a while but got filled on a decent amount – but I suspect most of which they traded with themselves.
Biggest trades were happening at 9.29.24 Seoul time
There’s an awful lot of 1,000 lots trading at 2.81 – I doubt there are that many players out there who trade such sizes. But mainly because that’s what I would do when I had such a big unwanted bid at the top of the order book and am not fast enough to cancel it – just sell it to myself in the largest size possible.
I had a feeling they hacked straight away at about an average loss of 40 ticks per option if I remember correctly
Also, open interest only increased by about 10k during that time whereas trading volume was multiples of that
I heard 20 million from a reliable source. Ouch !
so eclipse boys. how is the year end bonus?
20 million = rights issue. Who is investing back into the firm?
So IMC boys. How is year end bonus. Getting screwed
You mean paid exclusively in Dutch prostitutes?
Dutch women look like men
And vice versa
lol, there are enough sexy dutch babes out there, come out to ‘dam, quite bit prudish, makes ’em even more sexy
‘I heard 20 million from a reliable source. Ouch !’
Is that loss on the Kospi futures debacle ?
no, its your mama
rumour is they are seeking outside investment from a local brokerage company
Guys its been a tough year for bonuses all right so Chill.
Now it seems a bunch of their oz stocks team are about to move
Eclipse falling apart? Who has actually left since the kospi incident?
from what i have heard no one and its business as usual
When you are broke act like you need the money.
Maybe tony should just ask to get bailed out by his junior boys at Tibra.
Or he could ask Bhandari or the money
Expect a cross border m&a deal from Tony’s friend in Chicago
they are close to doing a deal with another hk firm for outside investment
then will they start trading hk single stocks again? they have completely dissapeared from the screens
everyone had a great january in bund ?
what about rxh3? It’s been selling off like the whole curve, but the curve flattening is what is causing the pain, street is refering it to as great position hunting, what’s going on in the omon?
what’s the deal with another hk firm? get cash injection?
anyone was responsible for the error trades?
IT, exchange, broker, anybody but me, haha