Sanket Patel
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CME mistakenly places test orders for trading
By Hal Weitzman in Chicago and Gregory Meyer in New York
Published: September 14 2010 16:19 | Last updated: September 15 2010 03:01
CME Group, the world’s biggest futures exchange, mistakenly placed orders on active energy and metals markets as it was undertaking a quality assurance procedure.
CME declined to say which contracts were placed into the live market or how many orders were sent or executed, but a person familiar with the situation numbered them in the tens of thousands.
The mistaken order flow began at 3:38pm Eastern time on Monday and lasted six minutes. CME said the erroneous orders had no impact on prices.
Futures brokers said they observed anomalous price action, however.
The spread between heating oil contracts for October and December delivery suddenly widened 28 per cent in the six minute period, when trading is normally slow.
“Then we heard today that someone did have a fat finger. It was the exchange,” said Andy Lebow, a broker at MF Global.
The US Commodity Futures Trading Commission is “actively reviewing” Monday’s events, its chairman, Gary Gensler, said.
CME’s admission about the errant trades raises questions about its systems at a time when high-speed trading is under scrutiny by regulators in the wake of the May 6 “flash crash”, when markets plunged and rebounded in a 20-minute period.
Errors can be amplified in an electronic trading environment, with a trader’s misprogrammed algorithm or extra computer keystroke able to rack up huge losses.
But it is unusual and embarrassing for an exchange to place unintended orders in a market it oversees as a self-regulatory organisation.
CME’s energy and metals contracts include crude oil, natur
al gas, heating oil, gold and silver.
The company said it had “inadvertently” posted test orders intended for its quality assurance procedure on Globex, the electronic trading system introduced in energy and metal markets in 2006.
CME said the company tests its systems as a matter of course and it had not determined whether human error or a computer glitch caused the mistake.
CME said it was working with “affected customers” but pledged it would not “bust” any completed transactions. The exchange will follow rules for “phantom orders”, which the CME describes as “caused by a failure, malfunction or negligent operation” of exchange systems.
By Hal Weitzman in Chicago and Gregory Meyer in New York
Published: September 14 2010 16:19 | Last updated: September 15 2010 03:01
CME Group, the world’s biggest futures exchange, mistakenly placed orders on active energy and metals markets as it was undertaking a quality assurance procedure.
CME declined to say which contracts were placed into the live market or how many orders were sent or executed, but a person familiar with the situation numbered them in the tens of thousands.
The mistaken order flow began at 3:38pm Eastern time on Monday and lasted six minutes. CME said the erroneous orders had no impact on prices.
Futures brokers said they observed anomalous price action, however.
The spread between heating oil contracts for October and December delivery suddenly widened 28 per cent in the six minute period, when trading is normally slow.
“Then we heard today that someone did have a fat finger. It was the exchange,” said Andy Lebow, a broker at MF Global.
The US Commodity Futures Trading Commission is “actively reviewing” Monday’s events, its chairman, Gary Gensler, said.
CME’s admission about the errant trades raises questions about its systems at a time when high-speed trading is under scrutiny by regulators in the wake of the May 6 “flash crash”, when markets plunged and rebounded in a 20-minute period.
Errors can be amplified in an electronic trading environment, with a trader’s misprogrammed algorithm or extra computer keystroke able to rack up huge losses.
But it is unusual and embarrassing for an exchange to place unintended orders in a market it oversees as a self-regulatory organisation.
CME’s energy and metals contracts include crude oil, natur
al gas, heating oil, gold and silver.
The company said it had “inadvertently” posted test orders intended for its quality assurance procedure on Globex, the electronic trading system introduced in energy and metal markets in 2006.
CME said the company tests its systems as a matter of course and it had not determined whether human error or a computer glitch caused the mistake.
CME said it was working with “affected customers” but pledged it would not “bust” any completed transactions. The exchange will follow rules for “phantom orders”, which the CME describes as “caused by a failure, malfunction or negligent operation” of exchange systems.
