Electronic "Glitch" on CBT

September 5, 2003

CHICAGO (Dow Jones)--A price anomaly was seen between electronically traded
and open-outcry traded Treasury bond futures at the Chicago Board of Trade
Friday morning, the latest in a string of unusual price discrepancies hitting
electronic futures markets this year.

Traders were scrambling to figure out what happened Friday morning, when the
a/c/e electronic order system showed the high for the December bond futures at
106 22/32, in contrast to the open-outcry trading high of 106 09/32. Some data
feed systems were showing the a/c/e high at 106 15/32, adding to the confusion
on the price discrepancies.

Typically, the prices on the electronic and open-outcry markets stay very
close in line - or arbitrage players will work to put them back on a more even
keel.

The discrepancies occurred during a very busy morning when the economic
highlight of the week, the August employment report, created some big moves and
volume in both markets. Bond futures rallied more than a full point after
nonfarm payrolls posted an unexpected drop of 93,000.

A Board of Trade spokeswoman said for "whatever reason" the prices just came
out of line in the two trading forums, but nothing unusual was seen.
"The electronic system did trade higher than the pit, but it was within the
normal range of our parameters, and all the systems were acting normally," said
the spokeswoman.

But traders were confused and sensed something wasn't quite right.
"It was frantic right after the (jobs) number. There was a big variance
between the pit and electronic highs, which made it very confusing to trade,"
said Kevin Pendley, an independent trader and president of CharTable Research.
"It made it look like either the pit was wrong, or the screen had hit an air
pocket of orders."

Pendley said it's normal to see some sort of differential in prices after a
major market-moving event, but nowhere near the scope seen Friday morning.
The problem was a nuisance, but didn't seem to cause a disruption in trading,
said market participants at the CBOT.

"It was a weird glitch that caught everyone's attention, but it seemed that
not many contracts traded up there (at the highs) so it didn't really cause
anyone big problems," said one floor broker.

Pricing issues and problems in relatively new electronic markets have been
described as growing pains, but have nonetheless frustrated quite a few market
participants in the past year.

Last month, the CBOT tweaked its electronic trade error policy in response to
concerns from the trading community after a sudden price drop in its mini-sized
Dow Jones Industrial Average futures contract this summer forced a number of
trades to be canceled.

The exchange also authorized the halt of electronic trade in "extraordinary
circumstances" and approved steepened fees to be charged for "entering
erroneous orders that result in mistrades."

The Chicago Mercantile Exchange said it plans to roll out new technology later
this month to address some of the problems occurring on electronic trading
markets when rounds of pre-arranged orders, or stops, are quickly triggered,
exaggerating price movements.

The CME said new "Stop Order Logic" capabilities on its Globex electronic
trading platform will help mitigate unusual price moves that occur occasionally
due to the continuous triggering, election and trading of stop orders on the
system.

-By Kristina Zurla, Dow Jones Newswires; 312-750-4132;
<mailto:kristina.zurla@dowjones.com>kristina.zurla@dowjones.com