"It's like flying in the dark": a glitch at the CME disrupted trading in currencies, treasuries and futures

Updated: added information about CME's announcement that operations on all of its markets have been resumed.

Futures and options trading was halted on Friday, November 28, at the world's largest derivatives exchange CME due to a failure associated with the cooling of data centers. Global currency trading was also affected. Dissatisfied and frustrated traders compare the situation to "flying blind", do not hold back in expressions and warn of volatility after the opening of trading in the U.S. on Friday.

The problems occurred with the cooling of a data center owned by CyrusOne, according to a message on CME Group's website. The failure occurred in the evening on Thursday, November 27, in the U.S. and remained largely unresolved on Friday ahead of the opening of U.S. markets for a shortened trading session due to Thanksgiving, the Financial Times writes. It was not until closer to 15:00 CET that CME Group's website reported that all of its markets were open and trading had resumed.

By noon in London, prices for futures related to the S & P 500, WTI oil and gold have not been updated for several hours, noted FT with reference to data from LSEG and FactSet. At the beginning of trading in London volatility was characterized by gold trading: the gap between bids to buy and sell was about 20 times larger than usual, according to Bloomberg. European and British bond markets, which use a different exchange, were not affected by the disruption, the agency said.

The exchange held an average of 28.3 million contracts a day in the third quarter in futures related to interest rates, treasuries, energy and securities, the FT added. The disruption was more widespread than CME had experienced in 2019 due to a technical error: it shows how much value CME Group and its Globex trading platform have, Bloomberg noted.

CME is the world's largest exchange for derivatives, the Financial Times said. Investors rely on CME futures to hedge their positions in markets ranging from U.S. Treasury Department treasuries to stocks in the S&P 500 index, the publication added. The disruption occurred on the last trading day of the month, when many options contracts expire and traders move their positions into new ones.

"The disruption exacerbates the already reduced liquidity after the US holiday, plus most markets have a halved trading day today," Rushabh Amin, multi-disciplinary portfolio manager at Allspring Global Investments, told the FT.

CME's problems have angered market participants because of a lost trading session with millions of contracts tied to the S&P 500, Dow Jones Industrial Average and Nasdaq 100, Bloomberg reports.

"It's a bit like flying in the dark. If you trade equities like we do, U.S. futures give you an understanding of where the market is going before the [exchanges] open. I can only imagine how hard it is for those in the derivatives business," said TP ICAP Europe 's head of securities sales, Tom Elaine, who was quoted by the agency.

Bloomberg calculates that options on the S&P 500, with a face value of about $600 billion, will expire on Friday, Nov. 28: although those contracts are traded on the CBOE market, traders are using CME futures for delta hedging. "Traders with open positions are definitely pretty angry," Gnanasekar Thyagarayan, head of trading and hedging strategies at Kaleesuwari Intercontinental, told the agency.

"Traders will move to alternative liquidity instruments where they can. We have lost one of the main sources of liquidity for the market. This increases the risk of sharp moves if something significant happens," AT Global Markets senior analyst Nick Twidale told Bloomberg. Fortunately for market participants, there is not much news expected on Friday: neither publication of any macroeconomic data nor speeches of the US Federal Reserve chiefs are planned, the agency added.

"It's a total pain in the ass, to be honest. We're facing a lot of unnecessary risk to continue to generate quotes. I assume the market won't like it: I think it will be somewhat volatile at the open," Christopher Forbes, head of Asia and Middle East at CMC Markets, warned in comments to Reuters.

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