Today's Black Gold Swan - Presenting The Reason Why The CME's Crude Market Was Halted For Over One Hour

Earlier today, we reported on the extended halt of the CME Globex crude market, which following an errant trading pattern, did not quite crash, but did the next best thing - go offline for a full 75 minutes. Why did this happen? Our initial speculation was that this "may have been an algo gone berserk in advance of what may or may not have been a block order.... Someone take quote stuffing a little too far today?" It turns out we were not too far off. Below is Nanex visualization of just what occurred in those seconds between 13:59:57 and 14:04:55 when "a blast of quotes corrupted a memory queue causing the software to believe the queue was full all the time." In other words just under two years after the May 2010 flash crash, another algo may have been the reason for the halt in one of the world's most important markets. At least this time there was no 10% "correction." How long until there is, and when it does happen again, will it be limited to just 10%? Oh, and whatever you do, most certainly don't expect this little incident to be brought up ever again by those in control, for any precautionary measure to be taken, or for the SEC to ever get involved. Any of those three would immediately imply something is very wrong with the market. And that's simply not allowed.

From Nanex:

NYMEX Black Swan ~ The March 2012 Crude Oil Futures Quote Loop

On February 13, 2012, starting 13:59:57, quotes for crude oil began queuing. At 14:00:35, all of the queued quotes were sent at once. Again at 14:01:08 the same 38 second block of quotes sent earlier was sent again -- old timestamps and all plus a few new quotes. Again at 14:01:18, all quotes since 13:59:57 were sent again. This repeated 12 times.

From a programmers perspective, it looks like a system problem caused a blast of quotes that corrupted a memory queue causing the software to believe the queue was full all the time.

 

Tick chart of bid prices (red) along with quote age (blue).

Note that as the cycle repeats, it includes a few more quotes (the new quotes + those since 13:59:57). There are 500 quotes between time axis labels.

 

500 millisecond chart of ETF U.S. Oil Fund (USO) showing massive quote traffic as it reacts to stale futures quotes.

 

500 millisecond chart of ETF U.S. Oil Fund (USO) showing massive trade executions in reaction to stale futures quotes.