Reuters: US Dollar Report: UPDATE 1-ICE circuit breakers to cover energy, US softs

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UPDATE 1-ICE circuit breakers to cover energy, US softs Mar 20th 2012, 21:46 Tue Mar 20, 2012 5:46pm EDT * ICE started rolling out IPL circuit breakers last week * New IPLs to cover energy, U.S. softs * Aim is to reduce market volatility By John McCrank and Marcy Nicholson NEW YORK, March 20 (Reuters) - IntercontinentalExchange Inc said on Tuesday it will introduce circuit breakers for certain ICE Futures Europe contracts, including Brent crude, and for U.S. softs futures like cocoa and sugar, to cut down on the likelihood of extreme market volatility. The Atlanta-based exchange operator first rolled out circuit breakers, or interval price limits (IPLs), last week for U.S. Dollar Index futures contracts and certain Russell Index futures contracts, aimed at preventing price spikes that are often associated with high-speed electronic trading. Circuit breakers have been used in equities markets for nearly a quarter of a century, but did not stop the May 6, 2010 flash crash in which the Dow briefly plunged nearly 700 points. Regulators have said the trigger thresholds were too broad. ICE said it kept the regulators' concerns in mind when developing its IPL policy. But some traders expressed concerns that the IPL amounts may actually be too small and the hold periods too short. "If you have such narrow trading, this market's going to constantly be stop, go, stop, go," said Shawn Hackett, of Hackett Financial Advisors in Florida. IPLs set upper and lower limits for given markets within specific timeframes. Prices that move beyond those set amounts trip the circuit breaker, putting the market on hold for a pre-determined amount of time, giving participants a chance to decide if the move was warranted. During the hold period, the affected futures contract can still be traded, but only within the IPL range. When the contract begins trading again, a new IPL range is set after the hold, based on the price at the end of the hold. ICE said that it can adjust the parameters of the IPLs at any point if needed. MARKET STABILITY Massive price spikes, though rare, have raised questions about the stability of high-speed electronic markets that are dominated by computer-driven, algorithmic trade, and which have largely replaced open pit trading. Since ICE agricultural futures went electronic in 2007 the relatively small cocoa market, for instance, has experienced several violent and short-lived moves that appeared disconnected with any fundamental news, traders say. A year ago the ICE cocoa futures market plunged more than 11 percent in seconds before rebounding a minute later, and many suspected computer-generated dealings. ICE canceled some trades as traditional players complained of market distortion. "It will break the fall for a few seconds but I don't know if it really does anything to change the overall situation," Jack Scoville, a vice-president with The Price Futures Group in Chicago, said of the IPLs. "Some of those markets, once they get rolling, they keep rolling." BRENT, COCOA AMONG NEW ICE plans to phase in the new IPLs in Europe on March 26 and April 1, and in the United States on April 2. ICE Futures Europe lists the leading global crude oil benchmarks and sees half of the trade in the world's crude oil and refined product futures in its markets. It said IPLs for EUA Futures, EUA Futures, ERU Futures, EUAA Futures, EUAA Futures, and Dutch TTF Futures, would be effective beginning March 26. IPLs for Brent Futures, Brent NX Futures, Gasoil Futures, Low Sulphur Gasoil Futures, WTI Futures, Rbob Futures, and Heating Oil Futures, would be effective April 1. In the United States, ICE said the circuit breakers for Sugar No. 11, Coffee "C", Cotton No. 2, Cocoa and frozen concentrated orange juice futures contracts would come into effect on April 9. Link this Share this Digg this Email Reprints

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