UPDATE: CME Group Admits To Delays In May 6 Client Messages

A sudden spike in trading activity on May 6 revealed shortcomings in the message-handling capabilities of CME Group Inc.'s (CME) clearing system, according to a notice sent to its clearinghouse members.

CME, the world's largest futures exchange operator, apologized to clearing members in the notice for its struggles in handling message flow, as some firms continue to work through fallout from the volatile trading session.

The company said it has taken steps to remedy the issues, some of which already have been implemented.

CME's stock index futures were an early target of efforts to pinpoint the source of the May 6 market volatility, but the company has insisted it saw no "anomalous" trades and even pushed other exchanges to adopt some of its risk-management practices.

U.S. stock exchange operators continue to work with regulators on new rules that would mitigate some of the effects of the market gyrations seen on May 6.

"The back-office delays in message data from CME clearing to our clearing members occurred after markets closed at the end of the day [of] May 6, and mostly May 7," said a CME spokesman Monday.

"These message delays--which are post-trade transaction updates--had absolutely no impact on trade matching, order routing or market volatility that took place on May 6."

The dramatic plunge in U.S. stock benchmarks and the quick rebound that followed have regulators and exchanges mulling industrywide practices, even as the specific factors behind the gyration remain unclear.

Media reports have pointed to a couple of large trades in options and futures contracts tied to the S&P 500 as potential factors triggering the selloff, linked with divergent price-volatility practices among stock exchanges and the decision by some major liquidity providing firms to suspend trading activity.

Staff at the Securities and Exchange Commission and the Commodity Futures Trading Commission are due Monday to report to a joint committee of the two bodies on their preliminary findings regarding trading activity on May 6.

"It wasn't a proud moment for the CME, because it showed their systems are not up to snuff to handle those types of peaks in volume," said one senior brokerage official, who said his firm was still working through repurcussions from the delays on Monday.

Reports on the fallout varied from firm to firm, with some taking several days to resolve issues while others said they faced no substantial issues.

In the notice to clearing members, CME said that a surge in trading messages bogged down the server network that supports message processing, prompting the company to route some messages to separate servers and temporarily shut down inbound message queues.

On the afternoon of May 7, CME took "remedial steps" to improve message flow to firms, and clearinghouse staff worked over the weekend to add additional trade message queues and servers to handle bigger flows of information.

There was also an "internal database contention issue" that delayed the production of trade register data files for some clearing firms. That issue has been resolved, CME said.

By Monday morning, when "similar message volumes" were seen on CME's markets, only a few firms saw minor message backlogs, according to the notice signed by Stephen Staszak, operations director of CME's clearinghouse department.

Wider-ranging upgrades are planned as part of CME's "longer-term plan to improve the integrity and reliability of our clearing system environment."

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

CME (NASDAQ:CME)
Historical Stock Chart
From Jun 2024 to Jul 2024