Unfounded Manipulation Concerns Over Canceled Dollar Trades

A number of people asked me about manipulation in regards to ICE cancels dollar index futures trades.

The ICE Futures Exchange on Friday canceled trades on the U.S. dollar index futures, the second time it did so this month, but provided few details. The exchange canceled trades in the December contract above 76.50, a spokesperson said. It was the second time this month that the ICE canceled trades on the December futures dollar index.

Traders on Friday said the December futures contract DZX9 on the index had spiked to 82, raising questions given that the dollar's rise versus the euro EUR= was below 1 percent. The euro is the biggest component of the index, with a weight of 57.6 percent.

"That fact that this has occurred on two specific occasions within a two-week time frame leads market participants to believe that there is some suspicious (cancellation) of legitimate trades by the ICE Exchange," said Mike Hill, a partner at private investment house USF Corp in Atlanta, Georgia.

According to estimates from market participants, about 4,000 contracts were canceled on Friday. The ICE declined to give the exact number. Sources said the trades affected were those that came in between 7:04 a.m. to 7:07 a.m. ET.

The ICE had also canceled trades on the December futures dollar index on Nov. 3, between 4:59 a.m. to 5:07 a.m. ET, a market source said, adding that around 8,000 contracts were canceled.

The ICE on Nov. 3 also had declined to give specific information about the volume or reason why the trades were canceled.

Given that the US dollar index components never traded high enough to take the index to that level, this seems to be a genuine error and grounds for cancellation.

The first question I have is "why wouldn't the ICE simply state the obvious?" The second question is how did two errors occur in such a short period?

Regardless of the answers to those questions (they are no doubt related and most likely still under investigation), purposeful manipulation of dollar index components by ICE seems out of the question. Clearly there was an error as the index never legitimately traded that high. Thus the trades should have been canceled even though questions remain in regards to how the errors occurred.

Moreover, please remember that Dollar Index trades do not amount to but a drop of water in the bucket of Forex trades.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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