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Oil price negative?


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Oil price negative?

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  #201 (permalink)
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Wow! Reconfirms my trust in IB big time.

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  #202 (permalink)
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Not how markets and trading should work.

You make a trade, you live and die with it.

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  #203 (permalink)
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Pa Dax View Post
Wow! Reconfirms my trust in IB big time.

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Here it's the full article: https://archive.is/EGIGB

https://www.bloomberg.com/news/articles/2020-05-08/oil-crash-busted-a-broker-s-computers-and-inflicted-huge-losses

GREAT NEWS!

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  #204 (permalink)
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WOW!
Then came what looked like the deal of a lifetime: buying 212 futures contracts on West Texas Intermediate for an astonishing penny each.

...

At midnight, Shah got the devastating news: he owed Interactive Brokers $9 million. He’d started the day with $77,000 in his account.


How is a guy with $77,000 in his account allowed to buy 212 futures contracts, approximate overnight margin requirement of $2.1 Million? That's day trading margins of 27+:1.

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  #205 (permalink)
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SMCJB View Post
WOW!
Then came what looked like the deal of a lifetime: buying 212 futures contracts on West Texas Intermediate for an astonishing penny each.

...

At midnight, Shah got the devastating news: he owed Interactive Brokers $9 million. He’d started the day with $77,000 in his account.


How is a guy with $77,000 in his account allowed to buy 212 futures contracts, approximate overnight margin requirement of $2.1 Million? That's day trading margins of 27+:1.

IB only asked for $30 margin per contract. That was the biggest mistake. There are people in even more unbelivable numbers

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  #206 (permalink)
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Not how markets and trading should work.

You make a trade, you live and die with it.

Not, when you can't exit... The moment I would have seen a minus bid of 1 CT.. I would have killed the trade in a heartbeat.. But.... I couldn't... System didn't let me...

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  #207 (permalink)
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bassa View Post
Not, when you can't exit... The moment I would have seen a minus bid of 1 CT.. I would have killed the trade in a heartbeat.. But.... I couldn't... System didn't let me...

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You mean not when you waited till it was too late. CME clearly gave notice - which I guess broker couldn't deal with. But it is our job to be informed about changes and having a backup plan in place.

Where did you get long?

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  #208 (permalink)
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But do you really every single day before you start trading, check the whole internet, whether there is some status update on the contract... And btw cme had on their own website stated that there was a low limit of 0.01and no high limit... They even still had it a week after the event.. Recently they took the whole column out


Strange, can't upload an image of their website, so you can see.. Cme had the wrong info on their own product

https://drive.google.com/file/d/1dk66hhMW2N8S6Okh7Bs3is8aid6UVgcK/view?usp=drivesdk


Also look at the update time in the picture.


May 1st 2020.. . That's like 10 days after the event... So at some point you have to deal with the info you are getting (in this case the exchange itself!!)

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  #209 (permalink)
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Speaking of things disappearing - what happened to this reply:

"No. I went long @ 20.01 cet... And at 20.09 it went subzero... Couldn't exit... Just to get settles at 20. 30."

that I got in an forum post email alert but don't see here now?

Anyway glad you were reimbursed. That is what is most important.

PS can't tell what that blurry google drive image shows.

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  #210 (permalink)
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bassa View Post
on their own website stated that there was a low limit of 0.01and no high limit... They even still had it a week after the event.. Recently they took the whole column out

Cme had the wrong info on their own product

Thanks for the CME photo, that is good evidence of their culpability. Were you with Interactive Brokers or another FCM?

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  #211 (permalink)
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futures trader View Post
Thanks for the CME photo, that is good evidence of their culpability.

I disagree. They explicitly documented the availability of negative pricing and the terms and conditions of the website specifically says they are under no obligation to update the Website.

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  #212 (permalink)
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SMCJB View Post
I disagree. They explicitly documented the availability of negative pricing and the terms and conditions of the website specifically says they are under no obligation to update the Website.

Quoted from Terrence Duffy CEO of the CME:

“The small retail investors are somebody that we do not target. We go for professional participants in our marketplace. But at the same time, they need to make sure they understand the rules and it’s up to their futures commodity merchants to make sure every participant knows those rules,”

Did anybody here get a notification from their respective FCM regarding the potential for negative pricing prior to this event?

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  #213 (permalink)
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I didn't but I also wouldn't expect to, FCMs don't set the rules, the exchange does. My FCM doesn't send me notifications of margin changes either. The exchange does. The announcements I expect from FCMs is for when they plan to diverge from Exchange Rules. For example if they are going to charge a premium to exchange margins or not allow trading in a contract. That is a decision the FCM makes.

I think Duffy's comment is actually out of place. They don't 'go for professional participants' they go for anybody. They like big traders because they trade more! If they don't want small traders why release the micro contracts? How many large institutional traders are trading a $15k Notional Equities contract?

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  #214 (permalink)
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SMCJB View Post
I think Duffy's comment is actually out of place. They don't 'go for professional participants' they go for anybody. They like big traders because they trade more! If they don't want small traders why release the micro contracts? How many large institutional traders are trading a $15k Notional Equities contract?

He's running one of the largest casinos in the world, of course he wants everybody. He probably has performance metrics for his bonus structure as the CEO. But when a tour operator (FCM) brings in a group of people to gamble (retail customers) he wants the tour guide to be responsible for emanating the rules. And, oh by the way the rules change, and I may not have sent you a notice, and my website shows inaccurate contract specifications.

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  #215 (permalink)
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futures trader View Post
He's running one of the largest casinos in the world, of course he wants everybody. He probably has performance metrics for his bonus structure as the CEO. But when a tour operator (FCM) brings in a group of people to gamble (retail customers) he wants the tour guide to be responsible for emanating the rules.

Two thoughts here.

The first is if it's casino why do you play. The odds in Casino's are stacked against you. Unless you have an edge you will lose.

Second is the deeper idea of speculation in the markets. Obviously the original need of the markets was for people who need to hedge to be able to hedge. Unfortunately it's unlikely a hedger needing to buy and one needing to sell both want to transact at the same time and at the same price. Hence the roll of the speculator. Providing liquidity to the hedger when he needs it at a price the speculator is comfortable at. But has the speculator become bigger than the market. I think in many/most/all cases yes. Speculation has become the game. Speculation drives the market. Is that good for the markets? If your a speculator maybe so but if you think markets should reflect fundamentals then maybe not. Question is how do you fix it. The idea that somebody with $77k in their account bought 200 futures contracts on penultimate is absolutely ludicrous. As is the idea that the Bank of China had 1000s of contracts in an ETF like structure on penultimate as well. The rules that are in place are supposed to stop this but they obviously don't. Maybe the exchanges should bring in day trading margins in addition to over night margins.


futures trader View Post
And, oh by the way the rules change, and I may not have sent you a notice

But they did. Multiple times. It was even discussed here on these forums over in the main crude thread. Serious professional traders knew prices could go negative.

futures trader View Post
and my website shows inaccurate contract specifications.

Somewhere between 'Debatable' and 'Disagree'. The contract specifications are correct - there is a specific contract specifications tab. The rulebook is correct. A single column on a live quotes page has a questionable meaning. Personally I've never seen the column highlighted in that photo but I pay for live data so have no need for delayed data. Even so I'm not sure what it means. There's lots of information on almost every website that is out of date or even inaccurate. That's why the website has a disclaimer that it might not be accurate. I will say this though, there is no disclaimer on the rulebook saying it might be inaccurate! Which raises the question @futures trader, have you ever read the rulebook?

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  #216 (permalink)
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SMCJB View Post
Somewhere between 'Debatable' and 'Disagree'. The contract specifications are correct - there is a specific contract specifications tab. The rulebook is correct. A single column on a live quotes page has a questionable meaning. Personally I've never seen the column highlighted in that photo but I pay for live data so have no need for delayed data. Even so I'm not sure what it means. There's lots of information on almost every website that is out of date or even inaccurate. That's why the website has a disclaimer that it might not be accurate. I will say this though, there is no disclaimer on the rulebook saying it might be inaccurate! Which raises the question @futures trader, have you ever read the rulebook?


I can personally attest to incorrect documentation on an ICE product page once costing me money and there being absolutely no recourse.

I also disagree with some others categorizing this as a rule change. There was never a floor. Having a floor would be a potential recipe for disaster. What if we hit $0 and suddenly a bunch of speculators without physical capabilities couldn’t find any willing buyers before expiration?



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  #217 (permalink)
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NotKenGriffin View Post
Having a floor would be a potential recipe for disaster. What if we hit $0 and suddenly a bunch of speculators without physical capabilities couldn’t find any willing buyers before expiration?



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The problem was not that, it was specific to the cash settled markets the day prior to delivery. There was never any risk of delivery with the contracts that blew up with interactive brokers and other FCM's that got hit.

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  #218 (permalink)
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futures trader View Post
The problem was not that, it was specific to the cash settled markets the day prior to delivery. There was never any risk of delivery with the contracts that blew up with interactive brokers and other FCM's that got hit.



You do realize the cash contracts settle against the official settlement price of the physical contract?


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  #219 (permalink)
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NotKenGriffin View Post
You do realize the cash contracts settle against the official settlement price of the physical contract?


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Yes and delivery was at +9$ Nobody took delivery at -$37, the cash settled markets got crushed, set up like a bowling pin, knocked down.

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  #220 (permalink)
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futures trader View Post
Yes and delivery was at +9$



Okay, what is your point? You want the financial contracts to have some special floor that the contract they settle against doesn’t?


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  #221 (permalink)
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NotKenGriffin View Post
Okay, what is your point? You want the financial contracts to have some special floor that the contract they settle against doesn’t?


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My point is this was a take down. There were inconsistencies with FCM's, data, platforms and there was no level playing field. Interactve brokers went -110 million, nothing to see here?

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  #222 (permalink)
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futures trader View Post
My point is this was a take down. There were inconsistencies with FCM's, data, platforms and there was no level playing field. Interactve brokers went -110 million, nothing to see here?



Was it Saudi Arabia? Greta Thunberg? The Illuminati? We may never know. My money’s on it being gross incompetence, and IKBR really has no one to blame but themselves. Peterffy trying to shift blame to CME was pathetic. When your company lets someone buy >200,000 barrels of oil with a $77k account, you only really have yourselves to blame.


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  #223 (permalink)
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From April 8th:

https://www.cmegroup.com/content/dam/cmegroup/notices/clearing/2020/04/Chadv20-152.pdf

I'm not sure how often I get these (I believe weekly) but this was the latest I received:

CME Globex Notices: May 4, 2020

Your CME Globex notice for the week of May 4, 2020, is now available.

This weekly notice includes details and effective dates for:

Upcoming CME Globex Technology Impacts
CME Group Product Launches and Changes
Events and Announcements

+ + +

Then you click on link to read actual individual notices themselves.

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  #224 (permalink)
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NotKenGriffin View Post
Okay, what is your point?

Wants somebody to blame!


NotKenGriffin View Post
My money’s on it being gross incompetence

Mine to. I don't think it was as nefarious as some suggest. I think things got out of control, people thought it can't get any worse than it already is, and then panicked when it did. Add in the algos and things ran further than anybody believed.


NotKenGriffin View Post
IKBR really has no one to blame but themselves.

Clearly. You would think they have a team that does nothing other the liaise with the exchanges.

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  #225 (permalink)
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SunTrader View Post
From April 8th:

https://www.cmegroup.com/content/dam/cmegroup/notices/clearing/2020/04/Chadv20-152.pdf

I'm not sure how often I get these (I believe weekly) but this was the latest I received:

CME Globex Notices: May 4, 2020

Your CME Globex notice for the week of May 4, 2020, is now available.

This weekly notice includes details and effective dates for:

Upcoming CME Globex Technology Impacts
CME Group Product Launches and Changes
Events and Announcements

+ + +

Then you click on link to read actual individual notices themselves.

Yes that's them. You can also sign up for all margin change announcements. Additionally you can also sign up for Global Command Center messages. GCC sent a message at 12:06 (Central) on Monday April 20th stating "May 2020 Energy Limits. The following May 2020 Energy Products (CLK0, HOK0, QHK0, QMK0, QUK0, RBK0, HCLK0, RTK0, WSK0, RLXK0, TCSK0, MPXK0, 23K0, CSXK0, 26K0) have no low limit and may trade negative." This is information I copied onto this very website 7 minutes later!


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  #226 (permalink)
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SMCJB View Post
Wants somebody to blame!


Mine to. I don't think it was as nefarious as some suggest. I think things got out of control, people thought it can't get any worse than it already is, and then panicked when it did. Add in the algos and things ran further than anybody believed.


Clearly. You would think they have a team that does nothing other the liaise with the exchanges.

So we agree, the FCM's are accountable to some extent. I'm not looking to set blame on any one party, but rather get a better understanding of how the exchange, technology/data providers, FCM's and their customers all participated in the outcome. Interactive Brokers is not the only one impacted by this, other platform providers and FCM's have come out and stated that they were unable to handle negative pricing as well.

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  #227 (permalink)
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futures trader View Post
So we agree, the FCM's are accountable to some extent.

Well they are accountable to themselves and their shareholders and they are accountable to the exchange in that they have a margin and credit obligation. But they only have an accountability to the customer in the sense that if they force all their customers to leave they will go out of business. Their legal obligations to the customer are probably very one sided and dictated by the law rather than what you (and I) would hope. Unfortunately most companies are like this not just FCMs

futures trader View Post
I'm not looking to set blame on any one party, but rather get a better understanding of how the exchange, technology/data providers, FCM's and their customers all participated in the outcome. Interactive Brokers is not the only one impacted by this, other platform providers and FCM's have come out and stated that they were unable to handle negative pricing as well.

The chain is simple. The exchange modified some exchange rules. I don't "think" this effected data providers in anyway. The issue came with software vendors and ill prepared traders. I agree any software vendor that was unable to show or transact at negative prices should have liability. If I was a trader and I had, say $10k in my account, and my broker allowed a position to go $20k against me, and then liquidated me at the close, I would be very frustrated. I would expect the FCM to liquidate me immediately I was technically insolvent. But I probably have no legal grounds to sue them. This is why its so interesting that IB is currently in the spot light for this. IB are know for having extremely aggressive liquidation policies. This implies to me that not only was their software flawed in that it could not display or transact at negative prices FOR CUSTOMERS, but also their internal risk control software was also unable to liquidate positions at negative prices.

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  #228 (permalink)
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"If I was a trader and I had, say $10k in my account, and my broker allowed a position to go $20k against me, and then liquidated me at the close, I would be very frustrated. I would expect the FCM to liquidate me immediately I was technically insolvent. But I probably have no legal grounds to sue them"

Agree..

1. Traders need to be responsible for their trades. 70k account shouldn't be able to trade that many CL contracts during high volatility period.

2. Brokers/FCM/Exchange need to be fair to their clients. Traders should be liquidated immediately when they are technically insolvent (account balance reach zero)

Sleep well, Eat Healthy, Breathe...
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SMCJB View Post
WOW!
Then came what looked like the deal of a lifetime: buying 212 futures contracts on West Texas Intermediate for an astonishing penny each.

...

At midnight, Shah got the devastating news: he owed Interactive Brokers $9 million. He’d started the day with $77,000 in his account.


How is a guy with $77,000 in his account allowed to buy 212 futures contracts, approximate overnight margin requirement of $2.1 Million? That's day trading margins of 27+:1.

A person trading 212 futures contract on a 77.000 USD account deserve to end up loosing - Just one tick against him ment a loss of 2120 USD or 2,75 % in loss just in one tick - Not trading very hasard gambling

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  #230 (permalink)
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Nobody wants the same thing to happen with June...


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@SMCJB
do you have some data about the monthly cost development of US fracking oil?
This might be interesting to compare and see it to the rest of US oil gaining costs.

Thanks
GFIs1

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  #232 (permalink)
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GFIs1 View Post
@SMCJB
do you have some data about the monthly cost development of US fracking oil?
This might be interesting to compare and see it to the rest of US oil gaining costs.

Thanks
GFIs1

There are no universal costs in oil exploration, drilling, refining and transporting. There are multiple regions and competitors and qualities of crude throughout the world, including fracking in the U.S. Some companies are well capitalized, some are not. Although even the well capitalized ones are struggling these days.

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  #233 (permalink)
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GFIs1 View Post
@SMCJBdo you have some data about the monthly cost development of US fracking oil? This might be interesting to compare and see it to the rest of US oil gaining costs.


SunTrader View Post
There are no universal costs in oil exploration, drilling, refining and transporting. There are multiple regions and competitors and qualities of crude throughout the world, including fracking in the U.S. Some companies are well capitalized, some are not. Although even the well capitalized ones are struggling these days.

I agree with @SunTrader. One of the interesting things about the surge in onshore fracking is the debt level associated with many of the drillers. I believe that a lot of the break even fracking cost estimates, which range from $40 to $60 barrel, actually include debt service. Of course the debt service is really a fixed company level cost rather than a well specific cost. So when you look at the cost of actually operating the well it can be considerably ($20/bbl?) lower. Another thing to consider when thinking about breakeven costs, is the cost to restart a well if you shut it down. In fact some wells can not realistically be restarted. So there are several reasons why producers might continue producing when it doesn't appear to make sense to.

Interesting read...

Reuters/Kemp :- U.S. commodities watchdog issues blunt warning over oil volatility
https://www.reuters.com/article/us-global-oil-cftc-letter-kemp/us-commodities-watchdog-issues-blunt-warning-over-oil-volatility-kemp-idUSKBN22Q222

The U.S. Commodity Futures Trading Commission (CFTC) has written to exchanges, brokers and clearers in unusually forthright terms to remind them of their obligation to ensure orderly trading and commodity pricing.

...

The Commission reminded futures exchanges they are legally responsible for preventing “manipulation, price distortion, and disruptions of the delivery or cash-settlement process”.

...

Futures exchanges were reminded of their obligation “to monitor the convergence between the contract price and the price of the underlying commodity” as expiry nears. Even more pointedly, exchanges were warned they must “monitor the supply of the commodity and its adequacy to satisfy the delivery requirements”. In a reference to problems with the deliverability of WTI, exchanges were instructed they must make “a good-faith effort to resolve conditions that threaten the adequacy of supplies or the delivery process”.

...

The letter notes exchanges have the power, among other things, to liquidate or transfer any open positions; suspend or curtail trading; and impose special margin requirements to ensure markets remain orderly and fair.

...

The letter also contains several reminders to futures commission merchants (FCMs) of their responsibility to manage risks associated with their clients’ positions in futures contracts.

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SMCJB View Post
Nobody wants the same thing to happen with June...


Including the CFTC

Have a read. A rather strong reminder to the FCM's to be on top of this with their customers

Attached Files
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Including the CFTC

Have a read. A rather strong reminder to the FCM's to be on top of this with their customers

Yeah I quoted a lot of it in the post before yours! The exchanges and FCMs could have done things to reduce this, but thats easy to say in hindsight.

Interesting chart from Kemp/Reuters. I'm not sure if 0 or 1 represents expiry but May OI definitely set 5 year records in two of the last trading days!


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Chart image says ... up to expiry (zero day)

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Pretty fascinating article


Quoting 
London Traders Hit $500 Million Jackpot When Oil Went Negative

Regulators look into a small group of investors who got rich on the unprecedented drop.
By Liam Vaughan, Kit Chellel, and Benjamin Bain
4. August 2020, 06:01 MESZ Updated on 4. August 2020, 20:23 MESZ

On April 20 the price of a barrel of oil for delivery the following month plummeted $40 in an hour, settling at –$37. It was the first time crude had ever crossed into negative territory. Regulators, oil executives, and investors have struggled to understand how a commodity at the heart of almost every aspect of global trade had fallen so far that sellers had to pay counterparties to take it off their hands.

But for a small group of veteran traders at a tiny London firm called Vega Capital London Ltd., the mystery mattered less than the results: They pocketed as much as $500 million that day, according to people familiar with the matter, who spoke to Bloomberg Businessweek on condition of anonymity.

Vega’s jackpot, which hasn’t been previously reported, involved about a dozen traders aggressively selling oil in unison before the May West Texas Intermediate contract settled at 2:30 p.m. in New York, the people say. It’s a tactic Vega’s traders used regularly, according to another person familiar with the firm’s strategy, but that day its trading coincided with a period of unprecedented volatility, when demand for fuel was wiped out by the coronavirus pandemic, and storage space in Cushing, Okla., where buyers take physical delivery of WTI crude, had all but disappeared.
Now regulators at the U.S. Commodity Futures Trading Commission, the U.K.’s Financial Conduct Authority, and CME Group Inc., owner of the Nymex exchange where the trading took place, are examining whether Vega’s actions may have breached rules on trading around settlement periods and contributed to oil’s precipitous fall, according to people with knowledge of the probes.

Within 24 hours of the crash, the May WTI contract had bounced back to about $10 a barrel. And oil futures prices have continued to climb, with the active contract trading as high as $42.08 a barrel on August 4. But the plunge, however brief, created some big losers. They include thousands of Chinese and American retail investors who, lured by oil’s recent slump, had piled into instruments whose value was pegged to the contract’s April 20 settlement price.

Whether Vega’s windfall was a result of savvy trading, blind luck, or something else, the idea that a relative minnow could have such a profound impact calls into question CME Chief Executive Officer Terry Duffy’s April 22 declaration that the futures market had “worked to perfection.”

“The idea that the anomalies that day were a function solely of supply and demand is fanciful at best,” says Joe Cisewski, special counsel to Better Markets, a lobbying group that advocates for tougher regulation. “Oil producers, brokers, and other market participants have been sent into serious financial distress. Regulators need to objectively and thoroughly investigate what happened.”

Spokespeople for the CFTC, FCA, and CME declined to comment. The CFTC has said it’s looking to release a report on the crash later this year. Vega didn’t return emails seeking comment.

Prop-trading firms like Vega give independent traders access to the world’s exchanges, back-office services, and extra capital to trade with in exchange for a desk fee, a commission on every trade, and sometimes a share of any profits. In a trillion-dollar energy ecosystem dominated by the likes of BP, Glencore, and Royal Dutch Shell, prop firms are bit players.

Vega was started in 2016 by Adrian Spires and Tommy Gaunt, friends who’d worked together on the management team at another London prop firm, Tower Trading Group, before branching out on their own. In 2017 about 20 of Tower’s energy traders quit to join Vega, sparking a legal dispute that was settled out of court. Gaunt quit as a director last year, and Spires, 44, now owns all of the business. He left school at 18 to take a job in the trading pits of the London International Financial Futures and Options Exchange. Some of Vega’s traders spent time at the International Petroleum Exchange, buying and selling barrels of oil using hand signals, before commodities trading migrated from open outcry onto screens.

The firm has an office a short walk from Liverpool Street station, above one of London’s All Bar One pubs, which it shares with a group of mostly recent college graduates trading cryptocurrencies for another company also owned by Spires. But most of Vega’s traders work from home, according to people familiar with the firm, even more so since the U.K.’s lockdown came into force.

While more than two dozen individuals trade through Vega’s omnibus account, finding information about them is difficult. Only a few list Vega as their employer on LinkedIn. The company’s website has remained under construction since Vega was founded.

One oil investor describes the firm as something of a throwback to the days of the pits, when rowdy so-called locals made or lost fortunes before heading to the pub to celebrate their winnings or drown their sorrows. Many of Vega’s traders know each other socially, playing golf and taking ski trips. They also trade together during key periods to maximize their impact on the market, the people familiar with the firm say.

To understand how Vega wound up making so much money that day, it’s helpful to consider some of the idiosyncrasies of the oil market. Among the most popular ways to trade oil is Nymex’s WTI futures contract, which allows buyers and sellers to agree on a price for 1,000 barrels of light sweet crude for delivery at a future date. New contracts are released every month, and they settle at 2:30 p.m. on or near the 20th of the month.

Nymex also offers a corollary instrument called Trading at Settlement, or TAS, in which buyers and sellers agree to transact at whatever the settlement price turns out to be. The settlement price is based on a volume-weighted average of trades occurring in the two minutes before 2:30 p.m. While it might seem curious that anyone would agree to buy something without knowing the price, the TAS market is popular among exchange-traded funds and other funds whose mandate is to track the price of oil rather than to get the best deal. It was also central to Vega’s strategy.

One of the quirks of the oil futures market is that to take a long-term position, investors must keep buying new monthly contracts, then sell them before they expire and buy future months’ contracts, a process known as rolling. A significant proportion of the market’s participants are speculators with no interest in taking possession of any oil, so before each contract expires they have to close out any residual positions, creating a flurry of buying and selling.

In the lead-up to the April 20 settlement, rumors were circulating that there would be significant downward pressure on the May contract. The recent slump in prices had attracted bargain-hunting retail investors into funds that track oil, including the Bank of China Ltd.’s Treasure, a vehicle linked to the price of oil. To manage its position after the influx, Bank of China and the banks it uses to help execute trades needed to sell large numbers of the May contracts and buy June ones. Two weeks before the settlement, CME, which monitors market activity, issued a rare public warning that negative prices were a possibility.

On April 20, as Bank of China and others were selling May contracts, Vega’s traders were hoovering them up in the TAS market, according to people familiar with the matter, agreeing to buy oil at whatever the settlement price turned out to be. Then, as the settlement time approached, they aggressively sold outright WTI contracts and other related instruments, contributing to the downward pressure on the price. Vega stood to profit if it managed to buy oil through the TAS market more cheaply than the oil it sold through the day.

Vega’s selling collided with an exodus of buyers, and the May contract tumbled from about $10 at noon to zero at 2 p.m., then all the way down to settle at –$37. Oil’s dive into negative territory meant that Vega ended up being paid for many of the contracts it sold as the market was falling—and for all those it bought at the –$37 settlement price via TAS, locking in a huge profit.

Buying TAS and selling outrights before and during the settlement is a well-known strategy that dates back to the pits, according to market participants, but it carries considerable risk. Selling futures can quickly turn into losses if a bigger player shows up and starts buying. “It’s a big poker game,” says Greg Newman, founder of energy-trading firm Onyx Capital Group.

There are also rules that forbid trading with the goal of deliberately affecting the settlement. In 2008, Dutch firm Optiver was sanctioned by the CFTC for abusing the TAS mechanism and boasting about its exploits in emails. And in 2011 the agency introduced a rule prohibiting a practice known as “banging the close,” which it defines as trading heavily during the settlement period in one market to influence a larger position elsewhere.

But proving manipulation requires the government to demonstrate intent, which is difficult without incriminating communications such as text messages. And winning cases has been difficult, even with the new rules. “They’re not in any way slam-dunks,” says Aitan Goelman, a former head of the CFTC’s enforcement division and now a partner at Zuckerman Spaeder.

It seems unlikely that Vega’s traders could have predicted just how far oil would fall on April 20. Its selling that day met a whirlwind of other factors that spooked potential buyers and exaggerated all participants’ impact on the market. As a result, Vega’s traders made more money than they could have dreamed of—and found themselves in the authorities’ spotlight. That may explain why its traders, usually active on settlement days, weren’t active in May, June, and July, according to a person familiar with the firm’s trading. —With Jack Farchy


https://www.bloomberg.com/news/articles/2020-08-04/oil-s-plunge-below-zero-was-500-million-jackpot-for-a-few-london-traders

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soumen View Post
...
By the way the negative oil price number that is thrown around is not actually true because few contracts maybe 5-6 were traded at that price and then it was halted...

Uhh no!

"In all, 14,913 crude oil contracts exchanged hands at negative prices on April 20, according to CME data. In other words, on average, sellers were paying buyers to take oil off their hands at a rate of more than 31 million gallons a minute. May 6, 2020"

https://www.institutionalinvestor.com/article/b1lhy2h328jhpt/Inside-the-Biggest-Oil-Meltdown-in-History

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Uhh no!

"In all, 14,913 crude oil contracts exchanged hands at negative prices on April 20, according to CME data. In other words, on average, sellers were paying buyers to take oil off their hands at a rate of more than 31 million gallons a minute. May 6, 2020"

https://www.institutionalinvestor.com/article/b1lhy2h328jhpt/Inside-the-Biggest-Oil-Meltdown-in-History

I think the article I read was talking about trading being halted at the low of the day not just negative price. That could be cleared up by looking at CME data Sorry I don't have access to back data.

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soumen View Post
I still remember reading article where people were suggesting best deal ever to rent oil tankers to store oil near zero and sell later after it recovers.

That happened a lot. Millions and Millions of Barrels. But WTI delivered to Cushing OK doesn't have any deep water ports. You have to send it down pipelines to Houston and Corpus Christi, but those pipelines were full, which is one reason prices where under so much pressure - no where for the oil to go!

SunTrader View Post
"In all, 14,913 crude oil contracts exchanged hands at negative prices on April 20, according to CME data.

That's surprisingly little, and I think makes the idea that a single player could have had an outsized effect on the market very real. Obviously the dynamics those few days were different than today but CL traded 1.2M lots yesterday including over 500,000 prompt month.

As for the article itself, no idea how accurate it is, could well have been embellished a little to make it more desirable, but there's nothing in there that looks unbelievable. The TAS market (Trade at Settlement) they mention is a big market. Today (8/6) at 10:53 eastern, which is still 3hrs and 35mins before the settlement range, just under 14,000 lots of TAS have traded including over 3200 lots in the prompt month. So what is TAS? CLT U20 which is the TAS contract for CL-U20 today is 0/1. If you are able buy at 0 you would buying a futures contract at settlement but if you have to pay the +1 you buy settlement plus 1 tick. This market is almost never wider than -1/+1 because the Algo's will arbitrage it. What the article is alleging is that they had bought TAS, hence they would be buying futures at the settlement price, so they then sold futures contracts in the open market to offset that position, and that in itself drove the market lower. Worth noting that the ICE WTI contract is financially settled against the penultimate settlement price so anybody unwinding NYMEX-ICE arbs would have had to exit on TAS that day as well.

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  #241 (permalink)
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By their nature major intra day swing reversal bars typically have minor volume amounts compared to the whole day's total since they only lasts minutes. But 15k is not nothing.

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since they only lasts minutes

And what we are talking about was what, 5 hours?

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And what we are talking about was what, 5 hours?

Broke 0.00 level @ 108pm, bottomed @ 129pm, had a more than 50% bounce @ 148pm that didn't hold, a 2nd higher low @ 234pm that did.

So it is however you want to look at how long it took. Me an hour or so. Because almost all of that sub zero volume was on the initial down move.

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I think we're addressing different things. Time Negative vs Time of Reversal Bar.

It didn't trade positive again until 7pm at night, after the reopen.
So it was negative for the last 3hrs on the 20th and for the first 2hrs on the 21st.

Hence

SunTrader
In all, 14,913 crude oil contracts exchanged hands at negative prices on April 20, according to CME data.

to me means that 14,913 contracts traded negative over a period of 3 hours not minutes.

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SMCJB View Post
I think we're addressing different things. Time Negative vs Time of Reversal Bar.

It didn't trade positive again until 7pm at night, after the reopen.
So it was negative for the last 3hrs on the 20th and for the first 2hrs on the 21st.

Hence

to me means that 14,913 contracts traded negative over a period of 3 hours not minutes.

If you want to "split hairs" yes you could say that.

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Yeah pretty interesting, in related news, it looks like a lawsuit has been filed alleging manipulation by those Vega traders.





Schnook View Post
Pretty fascinating article





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Yeah pretty interesting, in related news, it looks like a lawsuit has been filed alleging manipulation by those Vega traders.


Also looks like TD Ameritrade has been hit with a class action lawsuit regarding negative oil futures.

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Also looks like TD Ameritrade has been hit with a class action lawsuit regarding negative oil futures.

Link: https://www.desilvalawoffices.com/news/2020/august/td-ameritrade-class-action-lawsuit/

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Reuters: United States Oil Fund faces possible SEC action: filing

All related to changing their 'investment philosophy' mutiple times in multiple days back when WTI went to $0 (and beyond!)
"The notice, known as a Wells notice, says SEC staff have made a preliminary recommendation against USO, United States Commodity Fund LLC and its chief executive officer, John Love, saying it may have violated securities laws related to misstatements or fraud, according to the filing."

.

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E*TRADE next ... https://www.kbklawyers.com/day-traders-sue-etrade-for-huge-financial-losses-in-oil-futures-fiasco/

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A lot of lawyers are very "happy" nowadays.

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As always they will be the ones to profit the most on this situation.

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Regulatory action overseas from FSC (Financial Supervisory Commission) - Republic of China. 12 FCM's held accountable and fined 5.1 million

https://www.fsc.gov.tw/en/home.jsp?id=54&parentpath=0,2&mcustomize=multimessage_view.jsp&dataserno=202009100015&aplistdn=ou=news,ou=multisite,ou=english,ou=ap_root,o=fsc,c=tw&dtable=News

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futures trader View Post
Regulatory action overseas from FSC (Financial Supervisory Commission) - Republic of China. 12 FCM's held accountable and fined 5.1 million

https://www.fsc.gov.tw/en/home.jsp?id=54&parentpath=0,2&mcustomize=multimessage_view.jsp&dataserno=202009100015&aplistdn=ou=news,ou=multisite,ou=english,ou=ap_root,o=fsc,c=tw&dtable=News

Do you think the lawyers want to beat the Regulators to the punch-bowl?

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CFTC Interim Report on the May Crude contract trading negative is out. Full report can be downloaded from the link at the bottom of the press release. I haven't read it yet).

CFTC :- CFTC Staff Publishes Interim Report on NYMEX WTI Crude Contract Trading on and around April 20, 2020
https://www.cftc.gov/PressRoom/PressReleases/8315-20

only so reading...

CFTC :- Statement of Commissioner Dan M. Berkovitz Regarding the CFTC Staff Report on the Trading of Nymex WTI Crude Oil Futures Contracts On and Around April 20, 2020
https://www.cftc.gov/PressRoom/SpeechesTestimony/berkovitzstatement112320a

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Interesting.

The most eye opening thing to me was that 31.1% of all May contracts traded on Apr 20 were TAS, and that over 11000 TAS traded at limit down (-10c) compared to just 164 contracts in the entire year of 2019!!!

Of secondary interest was the high concentration of Long positions held by non-reportable's and reportable-other.

Also surprised that there was no discussion of 'other contracts settling based upon the April 20th settlement price'. For example the eMini QM and more importantly the ICE financial WTI contract both financially settled that day.

As Berkovitz's complaint states, disappointing that they didn't delve deeper into the trade activities, but maybe that's still to come.

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This is related to oil going negative:



Basically, AMP has a new Class Action lawsuit against them because of what resulted after oil went negative, among other things.

Mike

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Bloomberg:- The Essex Boys Who Rode Oil’s Crash to a $660 Million Profit
https://www.bloomberg.com/news/videos/2020-12-10/the-essex-boys-who-made-660-million-from-oil-s-crash-video

https://www.bloomberg.com/news/features/2020-12-10/stock-market-when-oil-when-negative-these-essex-traders-pounced

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From Crude Thread.

SMCJB View Post
John Lothian News :- Joel Fingerman of Fundamental Dynamics Weighs in on CFTC Oil Crash Report
An Analytical and Fundamental Response to the CFTC Interim Staff Report: Trading in NYMEX WTI Crude Oil Futures Contracts Leading up to, on, and Around April 20, 2020


https://johnlothiannews.com/joel-fingerman-of-fundamental-dynamics-weighs-in-on-cftc-oil-crash-report/

Good read. Love this chart, really puts the oversupply into perspective.


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From Crude Thread.

Absolutely a good (comprehensive) read.

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If I had a CFD long on CL during the subzero down, would I owned my broker by law all the borrowed monies for the leverage? I heard that if a CFD goes zero is like you own everyhing to the broker xD is that true?

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