American exchanges prepare for negative oil quotes

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American exchanges prepare for negative oil quotes
May 14
09:00 2020

The Commodity Futures Trading Commission (CFTC) has issued a recommendation to brokers and exchanges. It says that the oil markets will remain extremely high volatility and low liquidity, so the prices of some contracts may fall into the negative zone.

CFTC experts remind the exchanges that it is crucial to comply with rules that ensure the exercise of emergency powers where necessary. We are talking about the possibility of closing or transferring open positions under any contract, as well as requiring adherence to special margin requirements from market participants.

We recall that on April 20, May futures for WTI crude oil fell into the negative zone one day before the expiration of their validity (-37.63 US dollars per barrel). The reason was the lack of capacity for “black gold” storing. Naturally, futures brokers suffered losses.

Why did the Futures Trading Commission announce a high volatility readiness regime? The fact is that the June WTI contract expires on Tuesday. The April scenario could be repeated.

CFTC experts advise brokers to closely monitor futures, constantly conducting risk assessments.

Interactive Brokers has paid compensation to traders who suffered losses on April 20 in the amount of $ 108 million. GH Financials broker has relied on the requirement to withdraw from oil futures contracts at least five days before their maturity.

CFTC experts also said that the recommendations issued were not limited to oil and were not a forecast. The analysts’ words should be taken as instructions in case the April scenario repeats.


The material was prepared with the participation of Katya Wilson,
a leading analyst of the brokerage company UFT Group

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