CME Test Trades That Went Live Were Duplicates -Sources
September 15 2010 - 5:34PM
Dow Jones News
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
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