Did Natural Gas Have Its Own Mini-Flash Crash?

CNBC Senior Energy Correspondent Sharon Epperson discusses a mystery trade in natural gas:

There have been big swings in natural gas prices Thursday, moving the most-active July, 2011 contract between $4.70 and $5.00. But traders aren't talking about the hot weather or a bigger-than-expected build in natural gas storage. Instead, they are still baffled by a trade that whipsawed natural gas futures in an 8 percent range in just 15 seconds Wednesday evening.

"The price action did not just dictate somebody screwing up, making a mistake on an order,” says floor trader John Woods of J.J. Woods Associates. “I honestly thought my computer was broken.”

Around 7:40 p.m. ET Wednesday, natural gas futures plunged about 8 percent in 15 seconds, trading in a 40 cent range in the blink of an eye. The gyrations were more likely the result of a glitch in one or a series of quantitative trading system, traders and analysts say.

Petromatrix energy analyst Olivier Jakob writes: "The picture-perfect formation at the tick level clearly suggests that this was due to an algorithmic loop going nuts rather than a fat finger."

Traders say the volume of this aberrant trade was unusually large for the overnight session, above 1,000 lots. The price dropped sharply to $4.51 in electronic trading before snapping back on the CME Group's Globex Platform.

"This was not a Globex glitch,” says a CME Group spokesperson. So,”no trades were cancelled."

"Globex operated without issue," the spokesperson said.

The CFTC noticed the trade. "I think regulators have to stay abreast of these things and evolve, regulations need to evolve," said Gary Gensler, chairman of the Commodity Futures Trading Commnission.

"Algorithmic trading and high-frequency trading is now part of our markets," he said, according to Reuters.

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