What Do They Know? CME Implements Gold, Precious Metals Circuit Breakers Up To $400 Wide

Tyler Durden's picture

With memorandum S-7258, titled "Implementation of New NYMEX/COMEX Rule Regarding Special Price Fluctuation Limits for Certain NYMEX and COMEX Metals Futures and Options Contracts" released moments ago by the CME Group, and set to become effective on December 21, 2014, and which seeks a 5 minute trading halt when "price movements in lead-month primary futures contracts result in triggering events"...  "as a measure that is consistent with promoting price discovery and cash-futures price convergence" in order to "deter sharp price movements that may, for example, be driven by illiquid central limit order books prevailing from time to time in otherwise liquid markets", one wonders why now, and what does the CME know about upcoming volatility, or lack of liquidity, in the precious metals space that nobody else does (and does any of this have to do with the "berserk" algo test from November 25?)?

To wit, from the CME, highlights ours:

Implementation of New NYMEX/COMEX Rule Regarding Special Price Fluctuation Limits for Certain NYMEX and COMEX Metals Futures and Options Contracts

Background

Effective Sunday, December 21, 2014 for trade date Monday, December 22, 2014, and pending all relevant Commodity Futures Trading Commission regulatory review periods, the New York Mercantile Exchange, Inc. (NYMEX) and Commodity Exchange, Inc. (COMEX) (collectively, the Exchanges) will implement new NYMEX/COMEX Rule 589 (Special Price Fluctuation Limits) to apply price fluctuation limits to certain metals futures and options contracts. Price fluctuation limits deter sharp price movements that may, for example, be driven by illiquid central limit order books prevailing from time to time in otherwise liquid markets.

NYMEX currently applies price fluctuation limits to its energy complex of futures and options contracts. These limits are referenced in each contract’s respective NYMEX product rulebook chapter. The Exchanges are proposing new Rule 589 to extend price fluctuation limit functionalities to certain metals futures and options as a measure that is consistent with promoting price discovery and cash-futures price convergence. The operation of new Rule 589 for metals futures and options contracts is described below. The full text of the new rule is set forth in Appendix B. Appendix C provides the specific limit levels for the relevant NYMEX/COMEX contracts to which Rule 589 will apply.

The Operation of New Rule 589 for Metals Futures and Options

At the commencement of each trading day, new Rule 589 will require the Exchanges to determine initial price fluctuation limits as levels above or below the previous day's settlement price for lead-month primary futures contracts. There are three primary COMEX metals futures contracts and two primary NYMEX metals futures contracts. These contracts have the largest and most liquid metals central limit order books on CME Globex or are considered separate and distinct stand-alone products on an outright basis. The lead-month contract, as determined by the Exchanges, will typically be a primary contract’s most actively traded futures contract month.

The Exchanges will monitor the price movements of lead-month primary futures contracts in real-time on a daily basis. Price movements in lead-month primary futures contracts will result in triggering events. Triggering events result in monitoring periods, possible temporary trading halts followed by the re-opening of trading, and price fluctuation limit expansions.

If the lead-month primary futures contract is bid or offered via CME Globex at the upper or lower first special price fluctuation limit, the Exchanges will consider such an occurrence a triggering event that will begin a five-minute monitoring period in the lead-month contract. If at the end of this five-minute period the lead-month primary futures contract is not bid or offered at the applicable limit, the Exchanges will expand the limits an additional price limit increment above and below the lead-month contract’s previous-day settlement price. If, however, at the end of the five-minute interval, the Exchanges determine that the lead-month primary futures contract is bid or offered at the applicable limit, they will commence a two-minute temporary trading halt in all contract months of the primary futures contract as well as in all contract months of associated products. Primary contracts and associated products are identified in Appendixes A and C.

Following the end of a temporary trading halt, the Exchanges will re-open trading in all contract months of the primary futures contract as well as in all contract months of associated products. When trading resumes, the Exchanges will expand the price fluctuation limit an additional increment above and below the lead-month contract’s previous-day settlement price. Subsequent price fluctuations, if significant enough, will trigger the same sequence of monitoring periods, possible trading halts followed by the re-opening of trading, and incremental adjustments to price fluctuation limits.

As noted above, when an initial triggering event occurs, the Exchanges will commence a five-minute monitoring period. In each instance, the Exchanges will subsequently expand the price fluctuation limit for all primary futures contract months, as well as all associated products, by an additional increment above and below the lead-month contract’s previous-day settlement price. The incremental adjustment will occur regardless of whether or not a trading halt is triggered. However, no further special price fluctuation limits will be implemented following a trading day’s fourth price fluctuation limit adjustment.

Expiring Contracts

There shall be no special price fluctuation limits for an expiring primary metals futures contract during the period between and including the contract’s first intent day and the last delivery day. The Exchanges will also not call temporary trading halts or an expansion of special price fluctuation limits for primary futures contract months or their associated products during the last five minutes of trading between and including the first intent day and the last delivery day of a related expiring primary metals futures contract.

Floor Trading

The Exchanges will apply special price fluctuation limits to all primary metals futures and options contracts and all associated metals products that are available for trading on the floor. Although the Exchanges will limit all applicable markets on the trading floor at these price levels, floor trading in lead-month primary futures markets at these price levels will not constitute a triggering event under new Rule 589. In all instances when a triggering event resulting in a trading halt occurs on CME Globex, the Exchanges will immediately halt floor trading in all contract months of primary futures contracts and associated products. The Exchanges will implement a coordinated temporary trading halt for any floor-traded associated products that are options on primary contracts or other associated products. When the Exchanges re-open CME Globex markets with expanded price limits, the Exchanges will simultaneously re-open all affected markets on the trading floor with the expanded limits in place.

Questions regarding this notice may be directed to:

U.S.

Joann Arena +1 212 299 2356 Joann.Arena@cmegroup.com
Miguel Vias +1 212 299 2358 Miguel.Vias@cmegroup.com
Youngjin Chang +1 312 466 4637 Youngjin.Chang@cmegroup.com
Fred Penha +1 212 299 2353 Fred.Penha@cmegroup.com

Europe

Sandra Ro +44 203 379 3789 Sandra.Ro@cmegroup.com
Harriet Hunnable +44 203 379 3704 Harriet.Hunnable@cmegroup.com
Anindya Boral +44 203 379 3738 Anindya.Boral@cmegroup.com
George Adcock +44 203 379 3737 George.Adcock@cmegroup.com