The rules are made to be gamed

Silver edition

Full disclosure up front: I’m writing about David Jensen’s latest piece because I can’t restack it directly. He blocked me. Don’t know why, don’t particularly care, but credit where it’s due - he’s done some solid technical work here digging into the mechanics of last week’s silver crash. So let’s talk about what he found.

Remember January 30? Silver crashed 31% that session - from Thursday’s all-time high of $121.78 down to settlement at $78.53. But what made it even more suspicious was how it happened. I wrote about the crash being one for the history books, but something bothered me about the mechanics. At the time I wrote:

“This wasn’t panic selling triggering cascading stop losses. This was a mechanical, methodical descent from $122 to $76 over hours. Steady pressure. Never spiking down hard enough to trigger circuit breakers, but never letting up either. That kind of selling doesn’t happen organically. You can’t accidentally maintain 2-3% downward pressure every five minutes for an entire session without coordination and firepower.”

I called it controlled demolition. I just didn’t know how they controlled it. Jensen found the detonator.

COMEX has Dynamic Circuit Breakers (DCBs). These are supposed to be automatic safety switches that halt trading when things get out of hand. For silver, the DCB triggers at 10% price movement from a reference price calculated over a rolling 60-minute lookback window. When it triggers, trading stops for two minutes. The market takes a breath. Bids and offers fill in. Panic selling gets interrupted.

So far the theory.

On January 30 however, during the final hour of trading alone, silver dropped 17%. The full session: 31%. No two-minute pause. No circuit breaker announcement from CME.

Nothing.

Jensen emailed the CME and asked why their safety mechanisms didn’t work. And CME actually responded. In writing. Check his article for the emails:

Do CME COMEX Rules Have Trapdoors Effectively Allowing High Frequency Traders To Erase Price Movement Guardrails?

CME’s response?

Velocity Logics were triggered, not Dynamic Circuit Breakers.

Velocity Logics - VLs for short - are sub-millisecond price limits that operate underneath the main circuit breakers. Two types exist: VL Narrow (VLN) triggers on a 20 cent move in a 1 millisecond lookback window, and VL Wide (VLW) triggers on a 60 cent move in a 1 second lookback window. When a VL triggers, trading pauses for five seconds. Five. Not 120 seconds.

What actually matters - and this is straight from CME’s written response: when a VL triggers, it resets the reference price and restarts the 60-minute lookback window for the Dynamic Circuit Breakers. CME confirmed this. In writing. Multiple times across the email chain.

Think about what that means!!

High-frequency algorithmic traders can trigger VLs through millisecond-level trading activity. Each time they do: trading pauses for 5 seconds (barely noticeable to anyone watching), the reference price for DCB calculations resets to the new lower price, the 60-minute lookback window restarts from zero, and the 10% DCB threshold recalculates from that new, lower reference point. Do it again. And again. The price walks down in controlled steps. Each micro-crash resets the safety mechanism before it can trigger the actual two-minute halt that might let the market stabilize.

This is how you get a 31% crash without ever triggering the main circuit breaker. The guardrails aren’t removed. They’re just reset continuously, over and over, so they never actually apply.

It’s not a bug.

It’s a feature.

Or more precisely, it’s a reset mechanism that sophisticated traders can exploit to engineer exactly the kind of “mechanical, methodical descent” I observed in real-time.

Jensen notes the CME’s responses seem “somewhat circular”. That’s diplomatic. Go and have a look at the email chain he published.

CME Global Command Center confirms VLs were triggered. Confirms the lookback window restarts when they are. Confirms no VLCB (the wider circuit breaker) was triggered during the period in question. What they don’t address is the obvious implication: if VL resets can be weaponized to circumvent DCBs entirely, then what’s the point of having DCBs at all?

The answer, I suspect, is that DCBs exist for show.

They’re there to give retail traders and smaller institutions the warm feeling that markets have protective mechanisms. What those mechanisms don’t protect against is the very entities most capable of moving markets - high-frequency trading operations running algorithms that can exploit sub-millisecond timing and trigger the exact sequence of VL events needed to reset the safety rails before they engage. One set of rules for them. Another set for us.

This isn’t just about one day’s price action. This is about market structure. If sophisticated traders can weaponize the protective mechanisms meant to ensure orderly markets, then those markets aren’t orderly at all. They’re just dressed up to look that way. And in a market experiencing an intensifying physical shortage false price signals have real consequences. Low prices suppress supply. Producers don’t expand. Recyclers don’t recycle. Holders don’t sell physical.

Jensen showed us the mechanism they used.

They didn’t break any rules. They just exploited a reset mechanism that lets them sidestep the rules entirely, over and over, until the price goes wherever they need it to go.

And when the paper market finally breaks - really breaks - possession will be everything. Because you can’t reset your way out of an empty vault.