Last month, Western Texas Intermediate crude futures recorded negative prices on a double whammy of demand collapse and storage constraints.

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Now, the US commodities regulator, US Futures Trading Commission has cautioned brokers, exchanges and clearing houses, asking them to be prepared further volatility in prices, including negative prices.

“….prepare for the possibility that certain contracts may continue to experience extreme market volatility, low liquidity and possibly negative pricing,” the USFTC said in its advisory.

An excerpt from the advisory.

“We note that we are issuing this advisory in the wake of unusually high volatility and negative pricing experienced in the May 2020 West Texas Intermediate (WTI), Light Sweet Crude Oil Futures contract on April 20 (the penultimate day of trading and expiration of the contract).

The Divisions wish to emphasize that the subject of this notice applies equally to trading in other commodities, and registrants should remain vigilant and prepare accordingly.

In addition to considering risk controls and related issues, futures commission merchant (FCM), designated contract market (DCM), and derivatives clearing organization (DCO)are encouraged to ensure their customers and members have appropriate information on the risks and technical elements of contracts and trading around upcoming expirations.”

The advisory also told brokers that it would be prudent to re-familiarise their clients with the risk disclosures, notably the one which says that customers may incur losses beyond amounts deposited with the broker and that this may occur in the event of negative contract prices.