CME Restarts Most Operations After Chaotic Hours-Long Outage

CME +0.20% ^GSPC +0.44%

(Bloomberg) -- The Chicago Mercantile Exchange restored most trading operations after an hours-long outage stemming from cooling problems at a crucial data center disrupted multiple financial markets across Asia and Europe.

The exchange’s Globex Futures & Options markets, which handles futures, options, and commodities trading and accounts for 90% of CME Group’s volume, opened at 8:30 a.m. New York time. Volume remained light across many markets, with at least four traders noting delays in trading for Treasury futures and options tied to the Secured Overnight Financing Rate.

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A halt lasting around ten hours had triggered widespread frustration among market participants as they found themselves unable to trade contracts tracking the S&P 500 Index and multiple other assets ahead of month-end on the one of the world’s largest derivatives exchanges.

“I woke up thinking my Wi-Fi was out,” said Ritik Katte, chief investment officer at MCD Capital, a London-based investment firm.

The disruption lasted some three times longer than a similar disruption caused by a technical error in 2019 and underscores the reach of CME Group and its Globex electronic trading platform. Bourses operated by CME include the Chicago Board of Trade, the New York Mercantile Exchange and the Commodity Exchange.

CME Direct, a platform used to trade some of the company’s markets, was still unavailable, according to an alert shortly before the exchange said that all its markets were open.

The cause of the outage was a cooling system malfunction at a data center in the Chicago area, according to facility operator CyrusOne, which is backed by KKR & Co. and BlackRock Inc.’s Global Infrastructure Partners.

The Aurora, Illinois, complex has served as the primary hub of digital operations for CME Group for nearly two decades. The 450,000-square-foot facility is famous among high-frequency traders and Wall Street firms, who’ve jostled for position around the site to gain an advantage over competitors. Traders want to be close to the data center to minimize the distance data must travel in order to save microseconds.

The disruption unfolded in the hours following the US Thanksgiving holiday Thursday, when stock and bond markets there were closed. While activity was expected to be subdued on Friday, a shortened trading day, the glitch added extra complications, particularly for investors looking to make month-end adjustments by rolling positions from one contract to another.

“We’ve had to trade some cash Treasuries today and it was noticeably thinner and wider,” said James Athey, a portfolio manager at Marlborough Investment Management Ltd. “Month-end, day after Thanksgiving, CME down. It’s not an ideal combo!”

The outage shows how one single point of failure can upend markets from commodities to foreign exchange and fixed income. It also raises questions about CME’s contingency plans and the exchange’s coordination with CyrusOne.

Critical Decision

While CME’s disaster recovery plan includes moving to a data center in the New York area, the exchange opted to restart its matching engine from Aurora, according to a person familiar with the matter. The decision was made because the information the exchange had at the time signaled that the cooling issue would be resolved more quickly than it was, the person said.

CyrusOne said in a statement earlier on Friday that its teams were working “around the clock” to respond to the cooling system issue but didn’t respond to more detailed questions about the outage and why the recovery has been so prolonged.

For markets affected, the impact was significant. In London hours, trading of US Treasury futures was halted, gold saw erratic moves and US crude and palm oil on the Bursa Malaysia exchange were also affected.

Concentrated Markets

Some traders reported that volumes had shifted onto alternative platforms as liquidity and price transparency evaporated.

The disruption “shows how concentrated futures markets really are — there just aren’t many alternative venues for the main products,” said Thomas Texier, group head of clearing at Marex Group Plc.

November has been a volatile month for equities, with the S&P 500 slumping as much as 4.7% amid concerns about the path of Fed rate cuts and valuations of artificial intelligence-linked stocks. The index has clawed back those losses and volatility has been falling all week, back near October lows.

--With assistance from Serene Cheong, Yongchang Chin, Hallie Gu, Julien Ponthus, Alex Longley, Alyce Andres, Blaise Robinson, James Hirai, Weilun Soon, Michael Msika, Jack Ryan, Ruth Carson, Ye Xie, Isis Almeida and Katherine Doherty.

(Adds details on data center, commentary.)

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