After analyzing 2.2 billion transactions from 16 of the most actively traded futures contracts in all major market sectors from 2012 through 2017, the CFTC’s Division of Market Oversight (DMO) reported sharp, intraday price movements in the commodity futures markets.
Key findings. The CFTC release mentions the key findings from the research, including:
- Neither the frequency nor intensity of sharp price movements appear to be consistently increasing over time;
- Sharp price movements are linked to volatility, market fundamentals, and news and data releases; and, significantly, this research does not show signs of weakness or fragility in the futures markets causing disruptive price movements; and
- Most importantly, the U.S. commodity futures markets are very efficient, incorporate new information quickly, and continue to support the price discovery process.
The research also covered noteworthy Flash Crash events, including:
- On May 6, 2010, the DJIA dropped over 600 points in about 5 minutes, then somewhat rebounded in approximately the next 30 minutes;
- On April 23, 2013, the DJIA dropped 1 percent within a few minutes then rebounded completely;
- On October 15, 2014, yield fell 34 basis points from 2.2 percent to 1.86 percent then immediately rebounded;
- On January 15, 2015, the Swiss National Bank removed upper limit in the franc’s exchange rate against the euro and the Swiss franc rose 39 percent against euro and U.S. dollar; and
- On October 6, 2016, the British pound fell 6 percent in 2 minutes then rebounded somewhat in subsequent 30 minutes.
According to the report, the analysis shows that “today’s U.S. commodity futures markets continue to function well, are able to digest information quickly, and readily accommodate heightened volatility. In short, U.S. futures markets remain the premier price discovery mechanism for the world.”
CFTC Chairman J. Christopher Giancarlo in his opening remarks before the Women in Derivatives Forum in Washington D.C. stated that the research from DMO’s Market Intelligence Branch dispels the narrative that recent changes in market structure, particularly the growing presence of principal trading firms and high frequency trading, has in some way made markets less stable. Longer-term, heightened market volatility better explains short-term price swings, as does the direct revelation of information and news events, he said.