A luckless trader converted a modest programme trade into one of altogether greater significance by the simple expedient of adding two additional noughts to the value of a transaction. What should have been the sale of a basket of shares valued at around £3m turned into one worth £300m. Executed late in the day, when few counterparties were around to soak up the stock, it was enough to wipe 130 points from the Index. An otherwise dull market day turned into one with the makings of a bloodbath.The Stock Exchange takes great interest in events such as this. They are anxious to ensure that no market manipulation is taking place They need not have worried. The only losers were the investment bank, which presumably had to re-purchase the shares sold at a much higher price, and the luckless trader whose career prospects can hardly have been enhanced by the incident.

Just briefly this one trade captured everyone's attention ­ and then the Federal Reserve Bank slashed interest rates and all was well with the world again.Programme trades ­ orders in a basket of shares, aggregated using computer techniques and delivered electronically ­ are an increasing feature of life in the securities industry. The derivatives market is partly responsible, but there is also the fact that more and more money is run using quantitative techniques. The most common is the practice of index-tracking ­ highly popular in the US and gaining a strong foothold here. Many pension funds have a large proportion of their equity investments indexed They like the lower charges that apply. Index funds were also gaining support in the retail market, although the indifferent performance of the past year or so has lessened their popularity However they influence market behaviour.

This is why the other, planned, event had great significance.Indices are important because they are used as benchmarks. The way the index is calculated therefore has a bearing on how investment managers construct their portfolios. Recent practice has the component parts of indices weighted according to size of individual company. Thus, in the FTSE 100 Index, companies like BP and Vodafone contribute most to Index movement because they are the largest by market capitalisation.This may not be the best method to use. Often it is impossible to deal in all the shares in a company.