By Alexandra Alper
WASHINGTON, Sept 17 The U.S. Commodity Futures
Trading Commission is in contact with futures exchanges over a
brief plunge in oil prices on Monday afternoon, a top regulator
at the agency said, adding that it is unclear if high-frequency
trading played a role.
"Our people are aware of it. They are in contact with CME
and ICE and are going to get to the bottom of it," Commissioner
Scott O'Malia told Reuters.
IntercontinentalExchange Inc, home of the Brent
crude oil contract in London, declined to comment. CME Group
, where U.S. crude primarily trades, said it was unaware
of any technical issue that may have contributed to the selling
on the New York Mercantile Exchange (NYMEX).
Brent crude prices plummeted more than $3 in a matter of
minutes just before 2 p.m. EDT (1800 GMT) as trading volumes -
which had been muted by the Rosh Hashana holiday - shot up.
It was not immediately clear what caused the price plunge,
but traders said it could have resulted from a problem with a
high-speed computer trading program.
Regulators have been closely examining high-frequency
trading -- which accounts for roughly half of both U.S. equity
volume and the futures market -- after high-profile glitches
have roiled markets.
The May 2010 "flash crash" temporarily wiped $1 trillion in
paper value from the stock market in minutes. Regulators have
said the algorithms behind rapid-fire trading were a factor, but
that they did not cause it.
More recently, in August, a software glitch at Knight
Capital Group flooded the New York Stock Exchange with
unintended orders for dozens of stocks, boosting some shares by
more than 100 percent and leaving the company with a crippling
$440 million loss. The firm was forced to seek a financing deal
to stay afloat.
High-frequency trading, which relies on tiny price
imbalances to make razor-thin profits, contributes much needed
liquidity to markets, according to its proponents. But critics
say it puts retail investors at a disadvantage.
"When we see prices and volumes move this fast and this
dramatically, the job of CFTC surveillance staff becomes even
more important," Bart Chilton, another commissioner at the CFTC,
said in an email on Monday.
The CFTC and the Securities and Exchange Commission have
said they are committed to regulating the controversial trading
technique, but progress has been slow.
An industry panel convened by the SEC last February made 14
recommendations, including fees on high-frequency traders and
stock pauses during rapid price moves.
The SEC has worked with the exchanges to expand circuit
breakers for stocks and has adopted a "limit up-limit down" plan
designed to protect against market volatility by preventing
trades from occurring outside of a specific price band.
But the agency has not made more dramatic moves to rein in
The CFTC's Technology Advisory Committee, an industry group
convened by the agency and chaired by O'Malia has taken a stab
at the issue, by presenting a working definition of
high-frequency trading in June.
"We want to understand the way these things trade. Defining
them and measuring their performance and behavior in our markets
is something that we need to understand better," O'Malia said,
emphasizing that it is too soon to know whether the practice was
at fault in Monday's abrupt oil price swing.