24 July 2014

HFT firm's faulty algo blamed for oil price surge

26 August 2010  |  9029 views  |  0 graph 2

High-frequency trading firm Infinium Capital Management is at the centre of an investigation by CME Group into whether a $1 surge in oil prices earlier this year was the result of one of its algos going haywire.

According to Reuters, citing sources and documents, the firm's brand new trading program malfunctioned on 3 February, racking up a million dollar loss in around one second just before markets closed on the New York Mercantile Exchange.

The computer code error is thought to explain a sudden $1 surge in prices in less than a minute before they then fell more than $5 over the next two days.

CME Group and the Commodity Futures Trading Commission have been investigating the issue since and civil charges may be brought, says Reuters, although both refused to comment.

In a statement given to the Financial Times, Infinium chief executive Chuck Whitman says the surge was "a result of human error in a software test group and the parties associated with this error are no longer with the firm".

Whitman says software architecture has now been changed to prevent a repeat of the "inadvertent error".

The case again highlights the controversial and increasingly important role played by high-frequency traders and complex computer algorithms in markets. They have been heavily implicated in the 6 May flash crash that saw a dizzying plunge in the Dow Jones Industrial Average and regulators are currently considering various curbs.

In January, The New York Stock Exchange fined Credit Suisse Securities $150,000 for failing to control development of an algorithm that went awry and flooded the Exchange trading system with hundreds of thousands of erroneous orders.

Firm faces civil charges for oil trading mayhem - Reuters

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