U.S. oil trading halt roils settlement

NEW YORK (Reuters) - Electronic trading of U.S. oil futures on the New York Mercantile Exchange halted for more than an hour on Monday afternoon in one of the busiest periods of the day, forcing brokers to sprint for the open-outcry pits as prices settled.

In what some traders called one of the most disruptive glitches since the launch of parallel electronic trading about six years ago, the CME Group's (CME.O) Globex platform froze at 2:04 p.m. EST (1904 GMT), half an hour before the close. Some market watchers blamed the outage for a 50-cent jump in crude oil prices.

Trading resumed at 3:15 p.m., after the exchange had cancelled all daily orders. The CME calculated settlement prices based on deals from the NYMEX trading floor, which has continued to operate despite the fact that well over 95 percent of all trades are now done electronically.

The CME said "technical issues" had caused the outage, and a spokesman was unable to provide further details. The outage affected crude oil, heating oil and RBOB gasoline, but not natural gas.

Such glitches, while rare, have occasionally halted trade for brief periods in the past, distressing traders but otherwise leaving little lasting impact. But Monday's was the first time that activity had been stopped during the period in which prices are settled for the day, some said.

"It's not that halts in trading never occur, I think today's may have been the first time it really happened when the settlement prices were being wrapped up, and it made for a bit of uncertainty," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

"The CME cancelled orders in the system, and that was the first time I had to deal with that."

Orders placed to be executed by the close of business, called good til date or "GTD" orders, were cancelled by CME, but players were allowed to reenter them for processing in the 15 minutes before trading resumed. Good til cancelled orders, which do not have a set time to be implemented, remained working.

THE FLOOR LIVES

The glitch may raise questions about the robustness of the CME's Globex system -- particularly in an era of faster and faster trades -- as well as the longevity of the New York trading floor, which has defied fears that it will ultimately be shut like many of its rivals in London and elsewhere.

Global electronic trading began running in parallel with the floor in 2006, and since then has expanded to dominate volumes.

Eric Hunsader, CEO of market analysis firm Nanex, said it looked as though a software problem at NYMEX had led to thousands of quotes becoming backlogged in Globex seconds before 2 p.m., before being released all at once 38 seconds later.

Nanex's analysis of the data suggests this then happened 12 more times, and caused chaos for automated systems that trade the price difference between oil futures and exchange-traded funds (ETFs) like the United States Oil Fund.

"You had a massive arbitrage blast as the algorithms that trade between the futures and the ETFs seemed to ignore the time stamps, and saw a far larger price discrepancy than usual between the futures and the ETFs," Hunsader said.

"It went on for almost exactly five minutes, long enough that it looks like someone had to shut Globex down."

The sudden reduction in liquidity may have contributed to a 50-cent bump up in prices during the outage, one broker said, adding that generally lackluster volumes throughout the day likely spared traders a bigger headache.

"When prices froze up, WTI rallied slightly with the lack of liquidity squeezing the market higher, but while it was frustrating -- there may have been some swearing -- it didn't feel like a panic," said Chris Thorpe, executive director at Global Energy Derivatives IntlFC Stone.

"In the last 30 minutes of trading everyone is trying to settle their trades and balance their risk -- luckily the market hasn't been that volatile, there was no 'hot news' we were trading minute-to-minute, or it could have been a lot worse."

Trading activity in London's Brent crude on the Intercontinental Exchange (ICE.N) -- which remained unaffected by the outage -- was just below its 30-day average, while U.S. stock market volume was the thinnest this year.

A spokeswoman for ICE said trading in its look-a-like U.S. crude future in London was unaffected.

Front-month U.S. crude on NYMEX settled up $2.24 at $100.91 a barrel based on the floor activity, about 50 cents higher than where crude was trading before the halt.

It was not immediately clear what technical problem brought down the world's leading oil futures and options market. Sander O'Neill analyst Richard Repetto, who covers the CME, said people would want to know as quickly as possible what the exchange planned to do to prevent a recurrence.

He added, however, that any lasting impact may be limited by the fact the CME dominates liquidity in the main U.S. oil futures contracts: "There aren't many places to trade."

(Reporting by Jeffrey Kerr, David Sheppard, Jonathan Leff, Matthew Robinson, Janet McGurty, Gene Ramos and Robert Gibbons; Writing by Matthew Robinson; Editing by Lisa Shumaker David Gregorio and Dale Hudson)