CME Stays Silent on Cause of COMEX Silver Price Glitch
By GCRU Gold News on Saturday, July 8 2017, 01:27 - Permalink
Silver futures prices on the COMEX futures trading platform briefly plummeted at approximately 7:06am Singapore time yesterday, with the price for the front month (most active) September silver contract falling from a US$16.06 quote down to a low of US$14.34 all within a 1 minute interval. The futures price then recovered nearly all of its losses in the subsequent 2-3 minute period. High to low, this COMEX silver futures contract saw its price fall by just over 10.7%, before rebounding nearly 11%.
During this time when the COMEX price crashed, there was nothing fundamentally happening in the wider financial markets, or indeed in the physical silver market, to justify these price gyrations in COMEX silver futures prices. Which all goes to show that the COMEX ‘paper’ futures silver prices is completely detached from the physical silver market, and that COMEX silver futures prices have no anchoring in the real silver market.
What caused this momentary price plummet in the COMEX silver futures is not clear. This is because the CME Group, operator of the COMEX futures platform, has provided no explanation for these price gyrations. Possible causes could include market illiquidity, deliberate manipulation, a trading error or errors, or algorithmic trading programs triggering stop losses or inducing abnormal trading patterns.
Until the CME Group releases a statement on this (which it probably won’t), the exact cause of this futures price flash crash remains unclear. What the CME did do yesterday however was as follows:
At 19:06:38, the CME systems implemented a 10 second halt in the COMEX silver futures contracts. Within 20 minutes, CME made an announcement in a messaging broadcast that it was reviewing all SIU7 (September futures) trades that had taken place under US$ 15.84 and all SIZ7 (December futures) trades that had taken place under US$ 15.94. After another 20 minutes, CME announced in a messaging broadcast that for SIU7, any trades executed below US$ 15.54 would be adjusted up to US$ 15.54, while for SIZ7, all trades executed below 15.64 would be adjusted up to US$ 15.64.
These speedily introduced price adjustments would appear to suggest that the CME Group quickly determined that whatever caused the sharp price falls in the COMEX silver futures prices was not part of normal COMEX futures market trading, and that the CME made the call to back out and cancel at least some of the effects of this abnormal market trading. This would also seem to suggest the CME found evidence of something untoward, either price manipulation, or unfair algorithmic trading, or unjustified stop-loss triggering etc.
While these ‘paper’ trading markets in the form of the OTC London silver market and the COMEX futures market unfortunately do have a real impact on the international silver price that is inherited by these physical markets, this latest pricing fiasco on the COMEX again demonstrates that COMEX trading of precious metals futures and London trading of fractionally-backed unallocated precious metals spot and forwards contracts are becoming more and more detached from the underlying reality of the physical gold and silver markets.
This also has an adverse effect on investor sentiment in these paper markets and could in time be a trigger for shifting gold price discovery from paper to physical.