CFTC Probing Treasury Futures Spike Ahead Of Jobs Report

CFTC Probing Treasury Futures Spike Ahead Of Jobs Report
By U.S. Government [Public domain], via Wikimedia Commons

CFTC is reviewing Treasury futures spikes just ahead of the U.S. government’s release of key data on jobs market.

CFTC Probing Treasury Futures Spike Ahead Of Jobs Report

Karen Brettell and Ann Saphir of Reuters, citing a CFTC commissioner, indicated CFTC would be reviewing the trades as part of its standard operating procedures.

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CME trading halted briefly last Friday

Last Friday, Chicago-based CME Group Inc (NASDAQ:CME) triggered a five-second pause in contracts linked to the yields of 10-year and 30-year Treasury bonds, before the U.S. government data revealed a drop in employment growth in July.

CME is one of the world’s biggest marketplaces where investors take exposures by hedging against market swings.

Trades for large value in 10-year and 30-year Treasury futures were made just prior to the release of the jobs report. Such trades and large market moves can trigger automatic stops in CME Group Inc (NASDAQ:CME).

As reported earlier, Friday morning brought the much anticipated and market-moving monthly employment data. Trading activity broke out in U.S. Treasury futures as well as gold futures a few seconds before the official release. Curiously, the trading was in the proper direction.

We also highlighted how during the past week, many instances of high frequency trading went wrong.

$19.8 billion notional value trades

Karen Brettell and Ann Saphir of Reuters noted that about 198,000 10-year Treasury futures, with a notional value of $19.8 billion, were traded in the minute before the release. This translates to 14 percent of the volume traded in the contracts over the entire prior day’s session.

Just before CME Group Inc (NASDAQ:CME) halting trading on Friday, prices shot up by 20/32 of a point to 125 29/32 in a period of seven seconds. Moving with the trade, prices of 30-year Treasury futures also jumped, including contracts tied to German government bonds.

CFTC: CME must improve surveillance

In a 75-page enforcement review released Friday, Washington-based CFTC indicated CME Group Inc (NASDAQ:CME) must improve its surveillance of transactions on its systems besides requiring traders to keep better records.

The world’s largest futures exchange, CME Group Inc (NASDAQ:CME) resumed its futures trading two seconds after the jobs report wherein U.S. bond prices, including Treasury futures prices, rose, sending yields down sharply. This has shaken the confidence of investors who were betting the Federal Reserve could soon begin trimming its massive bond-buying stimulus program.

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