:max_bytes(150000):strip_icc()/GettyImages-1231061514-5424948a4a804776952ccfe3dd884a6d.jpg "A Major Markets Operator Suffered a Technical Glitch That Left Traders Scrambling. Should You Be Worried?")
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Key Takeaways
- CME Group’s derivatives markets went dark last Friday after a vital data center run by a third party overheated.
- The technical glitch showed how much global financial markets depend on a few key institutions.
The potential for a hugely damaging disruption in financial markets was averted thanks to a holiday.
CME Group (CME), one of the largest derivatives exchanges in the world, halted futures and options trading across major asset classes for 10-plus hours, ending early last Friday, due to an overheated data center. The outage occurred when trading volumes were lower than average due to Thanksgiving, which may have helped contain the chaos.
The crisis appears to have been averted, with financial professionals across the spectrum merely complaining about the blackout, and others speculating how much worse it could’ve been had it occurred during a normal trading day. However, that one faulty data center briefly took down a major exchange and had such far-reaching consequences—a futures exchange in Malaysia and its customers were affected—is deeply concerning in an industry that relies on a few key players.
Why This Matters to Investors
Market dominance leads to overeliance on a few big players. Just as recent cloud service issues at Amazon Web Services and Cloudflare sparked massive internet disruptions, the interconnectedness of the global financial system means that a broken air conditioner in Illinois could be felt by traders in Malaysia.
CME is a major force in the global financial system, processing futures and options linked to $1.7 trillion in underlying stock indexes alone. The company provides continuous price signals to traders, hedge funds, brokers and other investment professionals in real-time—for agriculture, currencies, precious metals, energy, and crypto as well—information as critical to financial firms as GPS navigation is to the airline industry. CME’s derivatives markets operate nearly 24 hours a day on trading days.
For investors who trade CME futures to hedge their positions in Treasurys, stocks or commodities, an outage, even a brief one, leaves them exposed. What has been largely chalked up to an inconvenience—this most recent glitch and the shorter one in 2019—raises the specter of a much bigger financial market disturbance because there aren’t many alternative derivatives trading venues.
CME’s outage hit across its derivatives markets, the knock-on effects of which were visible on social media platforms: brokers said pricing for certain contracts were temporarily unavailable and Redditors claimed their trades were stuck or unfairly closed as a result of the outage. The firm’s Globex platform, its main venue for trading futures that accounts for more than 90% of its average daily volumes, resumed operations early Friday morning, before the market’s abridged, post-Thanksgiving trading session.
The issue that broke CME’s main electronic-trading hub was traced back to a CyrusOne-operated data center in Aurora, Illinois, according to the Wall Street Journal. Temperatures reportedly rose when the air conditioner broke; CyrusOne said it bolstered backup cooling after the event.
How CME plans to address its data center dependence remains an open question. The company didn’t respond to an emailed query.
