CME Group trading outage exposes weakened trading floor

Wed Apr 9, 2014 7:48pm EDT
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By Tom Polansek

CHICAGO (Reuters) - Open-outcry traders sprang into action during an electronic trading halt in CME Group Inc agricultural markets on Tuesday, but a better solution to the outage would have been to close the pits down too, traders and investors said a day later.

In chaos following the outage on CME's electronic Globex platform, some orders sent to open-outcry grain pits went unfilled because there were not enough traders to handle the influx. And brokers said trades in the corn pit distorted the market for a key contract, which settled at a price out of line with where it traded before and after the outage.

The outage confirmed that open-outcry traders can no longer shoulder an unexpected flood of orders following a years-long exodus from the pits, traders and brokers said on Wednesday.

The number of traders, brokers and clerks on CME's cavernous agricultural trading floors has dwindled during the past decade due to the rise of faster and more efficient electronic trading, which now accounts for nearly 95 percent of volume in grain markets.

"I think the guys on the floor did a fantastic job with a terrible nightmare situation for them, but they don't have the numbers," said Ted Seifried, vice president of brokerage Zaner Group in Chicago.

"We should absolutely halt all trading, floor and electronic, if the Globex goes down," he added.

CME, which owns the Chicago Board of Trade, Chicago Mercantile Exchange Group and others, declined to comment on the outage beyond a statement issued on Tuesday that cited an unidentified technical issue.

The outage began at 12:38 p.m. CDT (1738 GMT) and was fixed by 2:15 p.m. CDT (1915 GMT), according to CME. By that time, grain markets had been closed for nearly an hour. Livestock markets, which trade longer hours, began trading again on Globex at 2:30 p.m. (1930 GMT)   Continued...

CME Group Inc.'s CEO Phupinder Gill speaks at the Sandler O'Neill + Partners, L.P. Global Exchange and Brokerage Conference in New York June 7, 2013. REUTERS/Brendan McDermid