By Jacob Bunge, Bradley Hope and Leslie Josephs
CHICAGO-- CME Group Inc. on Tuesday halted electronic trading in
some of its most popular agricultural contracts due to technical
problems, sparking chaos among brokers forced to revert quickly to
manual trading, a practice made nearly obsolete by the automation
of markets.
Futures and options trading in corn, wheat, live cattle and
other contracts were halted shortly before 2 p.m. EDT, according to
the exchange company, which said it resolved the issue about two
hours later. CME said in a notice it would cancel certain types of
orders while others would stand. In a second message, the exchange
said its ethanol futures and options markets were also halted.
Mike Hall, president of Litchfield, Ill., brokerage MLH Futures,
said he noticed the problem on his computer screen when he tried to
change an order he had already placed for corn contracts and saw
the market wasn't moving. He picked up the phone and dialed corn
brokers in CME's Chicago pits, something he said he rarely does
anymore.
"If we didn't have the floor to go to, it would have shut
everything down" in those contracts, said Mr. Hall, whose firm is
located in southern Illinois.
CME trades an average 1.1 million agricultural commodity
contracts a day, representing about 8% of all contracts traded on
its markets, the bulk of which are financial derivatives. CME is
the biggest futures exchange operator in the world in terms of
contracts traded and is the biggest exchange company in terms of
valuation.
Tuesday's freeze-up left farmers, grain elevators and investment
managers unable to electronically buy or sell some benchmark
derivatives contracts that are used to help price key agricultural
commodities around the world.
Brokers resorted to phoning orders into CME's Chicago trading
pits, where the surge of trading suddenly made some pits busier
than they had been in years, and left traders unable to accommodate
all the incoming orders, brokers said.
All of the grain futures and options would be settled Tuesday
through CME's manual, open outcry system that has largely been
supplanted by electronic screen trading. About 8.5% of all
contracts traded on CME's markets last month were transacted
through open-outcry trading, the company said last week.
"Everything went crazy," said Danny Manns, a clerk in the cattle
futures pit with brokerage Kenai Capital Management. "Everyone in
the S&P [futures pit] came over and watched us. It was like
'the Brady Bunch,' everyone was watching us from the stairway."
The shutdown prompted market participants with offices near the
trading floor-but who typically place trades electronically-to
flood the grain pits to complete trades.
"It was chaos," said Todd Thielmann, an independent broker on
the CBOT floor. "Guys were coming down out of their offices and the
pits filled up real fast. The desk personnel were running orders--I
turned down several orders. Everyone realized I was doing them a
favor--most of these orders go to the screen, so for us to take
their orders shows how we were able to turn it back on like in the
old days."
The technical issues at CME, which operates benchmark markets
that help traders and companies world-wide price grain and other
commodities, are the latest in a spate of system problems that have
snarled trading in U.S. stocks and derivatives markets in recent
years.
Amid the temporary change to open outcry, some traders worried
the move would strain the system.
Sterling Smith, a futures specialist at Citigroup in Chicago,
said, "It is like if you were flying a 747 and you threw it in
reverse. All the volume comes through the box (electronically), the
alternative is the pit. The pit isn't really equipped to handle
this sudden explosion. For people who actually have to get
something done, it could cause some aggravations," he said,
referring to producers and dealers of commodities who need to hedge
their supplies.
Tony C. Dreibus, Kelsey Gee and Alexandra Wexler contributed to
this article.
Write to Jacob Bunge at jacob.bunge@wsj.com, Bradley Hope at
bradley.hope@wsj.com and Leslie Josephs at
leslie.josephs@wsj.com
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