Following a "flash crash" in oil prices on Monday, when oil prices dipped by more than $3 in just one minute, Rep. Ed Markey (D-Mass.) today asked the Commodity Futures Trading Commission to expand its investigation into the event to include the larger effects of so-called "high-frequency trading" on the marketplace. While Tuesday's events still have yet to be fully explained, high-speed computer trading is a prime suspect.
"If large Wall Street computers are effectively running our oil markets, this high-frequency trading "cheetah' technology may really be nothing more than "cheater' technology," writes Rep. Markey to CFTC Chairman Gary Gensler. Rep. Markey is the top Democrat on the Natural Resources Committee and a senior member on the Energy and Commerce Committee. "Wall Street computers could be manipulating the oil markets, and consumers on Main Street are paying the price."
Rep. Markey's letter notes that at approximately 1:54 PM EST on Monday, September 17, the price of West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange (NYMEX) plummeted by more than $3 in less than a minute, dropping from over $98 a barrel to under $95 a barrel. This event, which some analysts and reporters are already calling a "flash crash" in oil, saw a sudden and dramatic spike in trading. According to the Wall Street Journal, "Some 12,500 contracts changed hands in a minute, compared with less than 500 a minute previously."
"Speculation is running rampant, with commentators positing that the sell-off could have been a single massive hedging event, a "fat finger' accidentally causing a large trade, or rapid trading in response to rumors of a possible release of the Strategic Petroleum Reserve," continues Rep. Markey. "Numerous analysts and commentators, including CFTC Commissioner Bart Chilton, have specifically fingered high-frequency trading computers as the culprit, arguing that with trading algorithms automatically caused a cascade of sell-orders at the speed of light without direct human input."