Human Floor Traders Step Up When CME’s Electronic Trading Fails

Human Floor Traders Step Up When CME’s Electronic Trading Fails
By CME Group/Henry Delforn/Allan Schoenberg (CME Group) [CC BY-SA 3.0], via Wikimedia Commons

Last week’s failure of the electronic trading systems of the CME Group Inc (NASDAQ:CME) showed that machines cannot completely replace human beings, and that human floor traders can still get the job done. On an average day, 95% of trading on the CME is electronic and 5% is executed by floor traders. However, floor traders in the agricultural commodity pits successfully handled the entire load last Tuesday, April 8th, for almost an hour.

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No reason has been given for the outage to date, except for an initial statement from CME Group Inc (NASDAQ:CME) confirming it had experienced a technical issue. “We communicated frequently with customers as we sought a solution to this technical issue,” a CME spokesperson said.

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CME released an alert at 1:51 p.m. EDT on April 8th, announcing trading had been halted in 31 agricultural commodity futures markets due to a technical glitch.

Strong performance by CME floor traders

According to a Reuters analysis of CME Group Inc (NASDAQ:CME) trading during the outage, floor traders succeeded in replacing electronic trading in most markets despite having to use their rusty floor trading skills.

For example, according to the Reuters analysis, traders in the wheat futures pit executed  22,606 contracts in the 37 minutes between the start of the outage and market closing at 2.15 p.m. EDT. That number is 40 times more than the average floor volume for the prior nine trading days during that time span, and approached the average 24,000 contracts typically traded in the same period on CME’s electronic platform.

Last week’s incident makes it clear that human floor traders still play a critical role in making markets, at least as a backup to electronic trading systems.

Analyst statements

Commodity analysts were generally positive about and impressed with the performance of the impromptu floor traders. “It’s a good reminder as to why we still have the pits around,” said Jerrod Kitt, analyst at the Linn Group, a futures brokerage who still has floor traders in CME Group Inc (NASDAQ:CME)’s agricultural trading pits.

“I thought the volume, looking at these numbers, was overall very good, especially for no heads-up,” said Terry Reilly, senior commodity analyst for Futures International.

Reilly and other analysts did comment that companies such as Futures International who continue to maintain floor-trading operations were able to fill most orders during the outage, while some brokers without regular traders struggled to execute.

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