A US regulator warned that oil traders should prepare for negative prices again as soon as next week

May 14, 2020

Observations & Insight

FIA Negative Price Webinar Emphasizes Proactive Communications
John J. Lothian, Publisher – JLN

During the webinar put on yesterday (Wednesday, May 13, 2020) by the FIA about negative prices and their impact, panelists emphasized the importance of proactive communications with the trading community in mitigating their potential risk.

Near the end of the discussion, CME Group’s Derek Sammann went so far as to say the Bachelier options model was “well known” to the industry and its customers.

I am not sure that is the case, especially with the retail traders who participate in their markets. I would point out that while the CFTC website’s glossary mentions the Black-Scholes options model, it makes no mention of Bachelier.

The CME Group website’s glossary makes no mention of either Black-Scholes or Bachelier. The Nasdaq website glossary mentions Black-Scholes, but not Bachelier. A search for the term “Bachelier” on TheICE.com website comes up with 0 replies.

There is also no mention of negative prices on these glossaries.

For the rest of the commentary, CLICK HERE

If you want to attend today’s virtual panel discussion by JLN about the Bachelier options model, email me before noon and I can still add you. Email me at [[mailto:johnlothian@johnlothian.com|johnlothian@johnlothian.com]]. There are a few spots left.


Lead Stories

A US regulator warned that oil traders should prepare for negative prices again as soon as next week
Saloni Sardana – Markets Insider
The US commodities regulator is urging market participants to be prepared for another negative oil price crash when the US oil contract for June expires later this month.
In a notice Wednesday, the Commodity Futures Trading Commission (CFTC) urged participants to “maintain rules to provide for the exercise of emergency authority, as is necessary and appropriate, including the authority to liquidate or transfer open positions in any contract; to suspend or curtail trading in any contract.”

U.S. commodities regulator warns of more volatility, possible negative prices
David Gaffen – Reuters
The top U.S. commodities markets regulator warned exchanges and brokerages on Thursday that they should be prepared for volatility and possible negative pricing for certain contracts, nearly one month after U.S. oil futures plunged into negative territory for the first time in history.

Oil traders shun WTI amid continuing concerns about delivery
John Kemp – Reuters
Futures traders are avoiding the June and even July light sweet crude (WTI) futures contracts to avoid the extreme volatility that marked the run up to expiry of the May contract last month.
At the close of business on Tuesday, with five more trading sessions before the June contract is due to expire, traders held contracts equivalent to just 155 million barrels for delivery.

Return of the vol: FX trading boosts banks’ Q1 revenues
Saikat Chatterjee – Reuters
Coronavirus-driven market panic restored the appeal of banks’ unloved currency trading divisions in the first quarter and volatility looks set to benefit them for months to come. The four biggest banks on either side of the Atlantic accrued nearly $29 billion in revenue from trading bonds, currencies, commodities and equities in the first quarter — up by a quarter from a year ago.

Backtest Basics: Seeing The Relative Performance Of The Option Strategy To The Underlying
ORATS blog
You can view the relative performance of the options strategy in a backtest to those of the underlying instrument by downloading the report.

Exchanges and Clearing

ETD Volume – April 2020
Worldwide volume of exchange-traded derivatives was 3.33 billion contracts in the month of April, down 26.7% from the previous month but up 26.5% from April 2019. On a year-to-date basis, volume in the first four months of the year was 14.74 billion contracts, up 39.1% from the first four months of 2019. Total open interest at the end of April was 917.7 million contracts, down 0.4% from the previous month but up 2.2% from a year ago.

CME S&P 500 Option Blocks Have You Covered
Tim McCourt – LinkedIn
In my role as global head of our equity index and alternative investment products at CME Group, I have the privilege of speaking with our clients about their risk management and trading needs on a daily basis. As a result of elevated levels of volatility and uncertainty over the last several weeks, many market users shared that they are incorporating different methods of trading and innovative hedging tools into their risk strategies. In response to their evolving needs during this time, we’ve recently made some changes to one of those tools that has been gaining in popularity of late as an alternative to over-the-counter (OTC) and floor-based trades – CME S&P 500 option blocks.

MIAX PEARL Equities Announces Upcoming Testing Dates Exchange Reaffirms September 2020 Launch Date
Miami International Holdings, Inc. (MIH), the parent holding company of the MIAX, MIAX PEARL and MIAX Emerald options exchanges, today announced that the launch of MIAX PEARL Equities, MIH’s first equities exchange, is scheduled to occur on September 25, 2020, pending approval by the U.S. Securities and Exchange Commission (SEC). To meet this launch date, MIAX PEARL recently announced its connectivity and testing schedule (MIAX PEARL Connectivity and Testing Schedule).

Equity Index Highlights – May 2020 edition
Global equity markets saw an impressive bounce back as investors chose to look towards positive data points on infection rates and vaccine hopes emerged. The initial leg of this rally came immediately after the first large quarterly expiry of the year, indicative that derivative positioning may have been a significant factor in triggering this short-term support.

Euronext publishes Q1 2020 results
STRONG FIRST QUARTER OF 2020 DRIVEN BY HIGH TRADING VOLUMES IN ALL ASSET CLASSES AND CONTINUED DIVERSIFICATION Amsterdam, Brussels, Dublin, Lisbon, London, Oslo and Paris – 13 May 2020 – Euronext, the leading pan-European market infrastructure, today announced its results for the first quarter of 2020.

*****MR: You can download the full report, which includes options market data, by following the link to Euronext’s website. The download button is at the bottom of the page.

CME Globex Notices: May 11, 2020
CME Group


CME Reference Data API Version 2
CME Group
Effective Sunday, June 7 (trade date Monday, June 8), CME Group will launch an enhanced version of CME Reference Data API named CME Reference Data API version 2. This enhanced version will require customer authorization using a CME Group Login and a registered OAuth 2.0 API ID to access the service. Customers that require access to BrokerTec content must also complete API ID entitlement registration.


(May 14, 2:00 PM CST) Overview of the Master Regulatory Reporting Agreement – derivatives reporting under EMIR
You are invited to tune in to a joint ISDA and FIA presentation, which will aim to provide an overview of the structure and functioning of the Master Regulatory Reporting Agreement (MRRA) that five industry associations co-published in December 2019 with the intention to simplify reporting arrangements across different EU regulatory regimes. This session will focus on how market participants can use the MRRA template to document and manage their regulatory obligations and provide services related to OTC derivatives reporting under EMIR. You will hear from legal experts about using the MRRA in practice, both with respect to mandatory and delegated reporting of derivatives, as well as the underpinning regulatory reporting landscape under EMIR Refit.


A London-based trading house bought 250,000 barrels of oil during the historic plunge below $0, and likely made a fortune
Saloni Sardana – Markets Insider
One trader bought 250,000 barrels of oil and secured a rare payout at a time when oil prices turned negative, causing jitters in markets and leaving most other traders scrambling to find storage options across both sides of the Atlantic, Bloomberg reported on Wednesday.
But for BB Energy, a London-based trading house,the historic oil market crash was golden opportunity owed to its competitive advantage of having storage capacity over other firms, a source who was not authorized to speak on the topic, told Bloomberg.

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