CME Group, the main futures market, screwed up trading for six minutes yesterday.
There’s a lot of weirdness here – that some unknown factor at an exchange was able to place orders for six full minutes without CME Group’s realising something was wrong, that someone was testing an algo (and inadvertently found out it sucked), and that CME Group doesn’t really have an explanation for this.
The assumption is that at 2:38 (when the screw-up began) the group either fat fingered or a computer messed up – in other words, the culprit is one of the two usual suspects.
Or, as CME Group explains it, something “inadvertently” placed “test orders.”
But when stuff like this has happened in the past – the flash crash, Infinium’s throwing off the price of oil futures in 5 seconds – the price was impacted (a lot). This time, CME Group says, their trades didn’t affect prices.
So nothing was canceled, aka no trades were “busted.”
If their trades didn’t affect prices, this should almost be a non-issue. Except that still, something happened at CME Group that made them enact their powers as an exchange to allow this:
“including without limitation, closing the market, deleting bids and offers, and/or suspending new bids and offers,” according to Rule 587.
So maybe the flash crash is a bad market event to compare this to, and Jim Simons is right to say that the flash crash was beautiful because the system proved it is robust.
In this case, the system proved there’s no reason to explain what happened because no one has any idea/has any way of verifying it, so it’s easy to explain something away by saying, we don’t know what happened either.
The worst thing that the flash crash exposed is that regulators don’t know how to figure out what went wrong. And they still don’t – so until they figure it out, we’re not going to have answers to any of these questions.