[Soultrader]

I can explain a few things from what I know here in Japan. I dont know much about arbitrage in the ES and such but for the Nikkei it is rather simple.

The Nikkei is traded both in the Osaka Stock Exchange (OSE) and Singapore Exchange (SIMEX). The tick increment for the OSE contract is 10 yen while the SIMEX contract is 5 yen.

1 tick (10 yen) = approx $100 for OSE contract
1 tick (5 yen) = approx $25 for the SIMEX contract

So arbitrage occurs simply by buying the bid and selling the ask. For example, you will buy 2 contracts at SIMEX at the bid of 12755 and then offer 1 contract at the ask on the OSE at 12760. This arbitrage allows a 5 yen profit with minimal risk. Unfortunately the system and resources required to do this can only be done by institutions.

In regards to program trading, I have no clue how the calculations are done but depending on the difference btween the cash and futures, institutional traders will send out basket orders. Early morning reversals here in Japan are usually program orders. This is a common strategy applied by many institutions here. We used to be amazed by the 10:00am reversals as it was most likely controlled by one big institutional trader. What this guy used to do was buy a basket of best performing stocks and sell a basket of worst performing stocks. This caused massive reversals in the futures market.