In a Wednesday Wall Street Journal article, “High-Speed Traders Exploit Loophole,” it claims that?high-speed traders are utilizing a hidden aspect of CME Group, Inc,’s (NASDAQ:CME)??computer system to “trade on the direction of the futures market before other investors get the same information.”
In a review of documents and speaking to traders, the WSJ found that these traders had an advantage between?one to 10 milliseconds. Keep in mind that a millisecond equates to one-thousandth of a second. But it’s enough of a difference for these computer-driven traders to create their orders based on this information for such products as crude oil, and corn–just to name a few commodities. The traders have then profited from this advantage.
Firms that are directly connected to the exchange’s trading computers are the ones with the ability to receive information before the market when their trades have been executed.?
CME swiftly responded to the article with the following statement:
While there can be instances of inconsistencies with any technology, CME Group is continually making improvements to our trading platform to increase efficiencies, including variability between the time a firm or customer receives its trade confirmation and it appears on the public data feed.? Out of the more than 300 million messages that come into our platform each day, there may be times when customers can experience a latency of a few milliseconds between the time they receive their trade confirmations and when that information is accessible on the public feed.? However, these instances are not consistent?and vary across asset classes.
At?CME Group, our goal is to bring variability as close to zero as possible and we have made significant steps to address latencies related to trade confirmations.? At the end of last year, we strengthened the overall performance of our CME Globex trading platform by reducing order response times and limiting variability within and across asset classes.? In the first quarter of 2013, we upgraded our match-engine hardware.? Through the remainder of this year, we will be implementing additional hardware, software and architectural upgrades ? all designed to further reduce potential discrepancies in processing times, make the overall system performance more predictable, and enhance the CME Globex trading experience for our customers.
On Thursday, CME will report its first quarter earnings prior to the market’s open.?