Mystery Solved, but Questions Remain
Posted by John Bates
Scooby Doo and the gang have been investigating the spooky mystery of the "phantom orders" on CME and they found out that the culprit was... wait for it.... The CME! Turns out the exchange plugged in some new contracts to try them on for size and they mistakenly went live and bam! they got traded.
According to the FT, CME Group said it had “inadvertently” posted test orders intended for its quality assurance procedure on Globex (http://tinyurl.com/23bpfjj). CME said the company tests its systems as a matter of course and it had not determined whether human error or a computer glitch caused the mistake.
The FT said the mistaken order flow began at 3:38pm ET time on Monday, September 13th and lasted for six minutes. Futures brokers noticed oddly anomalous spread price activity during that period, when trading is usually slow.
CME said it was working with the customers that somehow managed to trade these contacts in those six minutes, and says it won't "bust" the transactions. Fair enough. But the mistake shows how the exchange lacked adequate monitoring technology to see that some test contracts had entered the live environment - and were being traded.
This six minute phantom orders mystery is solved, but the very fact that it occurred supports my argument that brokers, traders and exchanges need to have more advanced capabilities to detect problems and abuse as they happen, and recommend actions to take in response. The Mystery Machine got to the bottom of the case, but it was not fitted with the latest real-time surveillance equipment. It seems, like Velma, the CME temporarily lost their glasses!