CME Test Trades That Went Live Were Duplicates -Sources

Thousands of test orders that mistakenly went live on CME Group Inc.'s (CME) derivatives markets on Monday were duplicates of orders from Friday's trading, according to people familiar with the matter.

About 30,000 orders for energy and metals contracts, intended for a test environment, were instead resubmitted to CME's electronic Globex market Monday afternoon, the CME has said. Thousands are believed to have been executed in transactions with customers over a six-minute period, according to people familiar with the matter.

CME has trumpeted the robustness of its systems through the financial crisis and during the May 6 flash crash, and has championed the clearing services it provides as a means to reduce systemic risk in financial markets.

The Commodity Futures Trading Commission said it was investigating the event, which happened Monday after most trading had ended and was disclosed in a brief CME statement in the early hours of Tuesday.

CME, which is working with customers to resolve issues around the executed trades, declined to provide additional details about how the incident occurred, after attributing the matter to "human error" on Tuesday.

People close to the matter said that Globex orders from the Sept. 10 trading session were regenerated in error in live trading on Globex Monday, alongside tens of thousands of system messages.

CME, the largest futures exchange company in the world by contract volume, said it has been communicating with brokers, customers and clearing firms to sort out the trades, which it is reviewing one by one.

All the transactions that took place in the brief period the test trades were live on Globex will stand, according to CME, and the exchange now is evaluating how to compensate losses and potentially reclaim gains made as a result of the errant activity.

One CME customer said Wednesday that his firm had yet to be contacted by CME in relation to a range of trades that turned out to be modestly profitable.

The firm put on a large spread position during the time CME sent the test orders into the market, the person said, and later got out of the position with little difficultly. A spread trade involves buying one contract and simultaneously selling another to profit from price differences between the two.

The exchange operator hasn't yet asked the firm for any money back in relation to the transactions, the person said.

One Chicago-based brokerage said Wednesday that of the few customers that were affected by the test trading issue, the issues were identified and mitigated before their accounts were affected.

A notice from another brokerage firm instructed customers questioning orders filled on CME's energy and metals markets to set up a conference call with CME's Globex Control Center to verify whether an erroneous test trade was to blame, and then to move positions into an "error account."

-By Jacob Bunge and Susan Pulliam, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

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