QuoteProgramme traders run large-scale, computer-assisted trading strategies, where decisions to buy or sell are triggered automatically by price movements. While others have suffered, they have enjoyed strong gains in the market turmoil. Their influence on markets is growing. On an average day, programme traders account for about 30% of trades on the New York Stock Exchange but that can rise to more than 70%, as it did last June, according to the exchange. As fund managers worry about a possible recession in the US, a slowdown in China and the unwinding of the all-powerful yen carry trade, analysis of the weeks events revealed programme traders had a hand in driving markets lower and higher. On February 27, the Dow Jones Industrial Average fell 500 points before closing down by 416. Hank Camp, who runs programme trading advisory company HL Camp & Company in Florida, said: Its the age-old question of whos right and wrong. Is it the fundamental analyst or is it the programme trader? On Tuesday night all the stocks were down, yet the reasons to own them were the same as on Monday. When the programme traders drop the Dow by 250 points with nothing but sell programmes, you better know what programme traders are doing. A note appeared on a blog last week about a well-timed programme trade. The trader wrote: While the talking heads opined how much the markets liked Federal Reserve chairman Ben Bernankes comments, the trader in me just snickered. Like many of you, I saw the big buyer of SPX futures at 9.59am he lit up the markets long before any human had the ability to read Bernankes comments and determine they were dovish on inflation. It was a well-timed programme, and if you ever spent any time on a trading desk, you said to yourself, Jump on board, the big boys are taking us higher. Fund managers said fundamentals will propel markets over the long term. But the sharp setback and high probability of a second leg of the correction to come had many questioning which way to run. Buyside dealers said they had kept out of the market. Steven Way, head of European equity dealing at Standard Life Investments, said: The order books are relatively thin on the buyside, so an aggressive sell will not have to be very large to have an impact. Long-only managers have looked at the fundamentals, seen a turnround in sentiment and are sitting on their buy ordersLen Ioffe, portfolio manager in the quantitative equities group at Goldman Sachs Asset Management in New York, said: We are judged on a relative basis so we manage portfolios relative to the benchmark. When markets move sharply up or down or are volatile, we would not submit an additional programme, either trying to buy or sell a lot of securities to benefit from that. We did not institute any additional programmes to trade last Tuesday when the Dow fell. Camp said to avoid losses created by sell programmes, investors should be able to identify when they hit. Hedge funds were selling S&P 500 futures last week to hedge against the impact of sell programmes sending markets lower. Fundamentals are great but when these computers start selling, nothings going to hold these stocks up, he said. Paul Lynch, managing partner at algorithmic trading specialist PE Lynch in London, said fund managers that do not use programme trading cannot react quickly enough to changes in sentiment. Investors that arent using algorithms are probably nursing the biggest losses because they wouldnt have had the speed to react," said Lynch. In the week beginning February 27, there were more sell programmes than usual at $726.3m (552m) on average each day, versus the average of the previous 52 weeks of $499.8m a day. But programme trading as a proportion of total volumes was 32%, compared with the 52 week average of 30.9%. That has led some to conclude programme traders could not have been responsible for the corrections severity. Tim Price, chief investment officer of global strategies at Union Bancaire Privée in London, said: The fast money community is definitely out and about. People jumping in at the far side of the pool disturbing some of the more sedentary swimmers is a trend were going to have to live with.There were also murmurs that structured products, where investors are forced to sell risky assets to protect their capital when markets fall, contributed to the slide. Simon Rivett-Carnac, head of institutional business and specialist products at Sarasin Chiswell, said increasing use of portfolio insurance tools, which automatically sell equities to invest in cash when certain market levels are hit, had probably accelerated the fall. He said: Risk has been cheap, so people have been able to take out portfolio insurance and index options. Private clients have become more educated about those instruments. But at times of increased panic, that will cause more volatility because people will have positions they need to clear. When the Dow Jones drops 300 points in two minutes, it is this sort of thing that is behind it. The ins and outs of automated trading. Programme traders run large-scale, computer-assisted trading strategies, where decisions to buy or sell are triggered automatically by price movements. Most programme trades are executed by banks, such as Goldman Sachs, Lehman Brothers and Credit Suisse, on behalf of clients. If a fund manager wants to sell a million shares of Exxon, he or she can approach the New York Stock Exchange and try to sell them all at once but the impact of the order is likely to send the share price lower. Instead, the manager can use a programme trader, which will wait for a buy programme and sell a quarter of a million shares and hope the order will be absorbed. The trade therefore has a reduced market impact. Several banks also use programme trading to trade on their own account.Another type of programme trading is index arbitrage, where a trader seeks to profit when a futures contract trades differently to its underlying market. These trades account for about 5% of US equity trading volumes. As the US market is highly efficient, the gains from this strategy are small at about four to five basis points above the yield of US treasury bonds. The New York Stock Exchange defines programme trading as a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1m or more.