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Roger Ehrenberg at Information Arbitrage points out that some traders were doing quite well, thank you, from the NYSE's computer glitch.

See the black line - that's the spot DJIA. See the blue line - that's the March DJH07 futures contract traded on the CBOT. So, let's walk through this together. In the morning the spot and futures markets pretty much tracked each other. Then look what happened - uh oh, the spot market is falling behind, while the futures market is reflecting the true market sentiment. They are starting to diverge, then wider, wider still, FOR ABOUT TWO HOURS, until BANG - the alternative cash system kicks in and the flood of sell orders drops the spot index like a stone. So this technical "glitch" was really, at its core, a timing delay. Then the futures market, as if it knew what was going to happen, ran up, after which the spot market followed with a significant lag. After a little sputtering and some continued dislocation late in the day yesterday, they tracking each other once again today. Whew.

So what does this mean? A savvy futures trader that saw the divergence could have positioned themselves to profit from the inevitable meltdown in the spot market, and the subsequent run-up after the futures rallied ahead of the spot market. AND HAD ABOUT TWO HOURS TO DO IT.

Posted by edelfenbein at March 1, 2007 9:55 AM