IB customers lose $88m trading WTI crude

[MtrGuy]

Creator,

IB doesn't allow customer to trade futures having physical delivery over the last trading days (or hours, it depends on the underlying commodity/bond):

https://www.interactivebrokers.com/...owcategories=&p=physical&cc=&limit=100&page=1

If I'm not mistaken, at IB, last trading day for CLK0 was April 16 (see joint jpeg, 2 business days before April 20).

Si, it's very strange seeing you able to buy CLK0 on April 20 (sorry, don't know if this fact is of any help for you, but IB allowing you to buy on April 20 was against their own stated rules).

And I know these rules were generally in force, because yesterday, when CLK0 turned finally positive I tried to send an order using TWS, but was unable to send it to the market. Instead, I received a warning about my order not being accepted, according to their "physical delivery futures" rules.

So, speaking about the 88Mln loss, my guess is .............. it comes from IB customers trading CLM0, because nobody could trade CLK0 in April, 20 (and 21) with them.
If my guess is right, the 88Mln loss in not related to negative prices of CLK0, but to the unprecedented volatilty of CLM0.
And this is a bit worrying, as I (as everybody) used to think that IB risk management is able to identify in real time a margin call, and close the position before the account goes negative....

Hi Angelo,

Thanks that's quite pertinent.
As I understand it, according to IB policy, the May 2020 positions were subject to liquidation starting from April 16 if they had not been rolled over by the customer but it doesn't clearly state whether you could initiate positions after that date. The Cutoff time being April 20 19:30 (post fixing), I am not sure whether it goes against their rules.

However, I don't understand what represents the Long Future Liquidation date (April 17).

https://www.interactivebrokers.com/en/index.php?f=deliveryExerciseActions&p=physical

If someone has a different/clearer understanding of that table, please let me now.

 

[329200]

Does anyone know if May crude ended trading on 4/20 by the cutoff time, what accounted for the volume that was recorded on 4/21, when it traded all the way back up to $13? Were they big institutions or banks? If so it seems like they had the most incentive for what happened because they were still allowed to hold the contracts on 4/21 and was able to close out before expiration.

By the way below is a screenshot from Thinkorswim showing substantial volume for the contract on the 4/21 nearing expiration.

 

[qwerty11]

Hi Angelo,

Thanks that's quite pertinent.
As I understand it, according to IB policy, the May 2020 positions were subject to liquidation starting from April 16 if they had not been rolled over by the customer but it doesn't clearly state whether you could initiate positions after that date. The Cutoff time being April 20 19:30 (post fixing), I am not sure whether it goes against their rules.

However, I don't understand what represents the Long Future Liquidation date (April 17).

https://www.interactivebrokers.com/en/index.php?f=deliveryExerciseActions&p=physical
View attachment 225960

View attachment 225961

If someone has a different/clearer understanding of that table, please let me now.

But the whole discussion is about ICE futures that are financially settled.

Maybe it has something to do with footnote 1 (i.e. what you show not applicable for margin accounts).

 

[qwerty11]

Does anyone know if May crude ended trading on 4/20 by the cutoff time, what accounted for the volume that was recorded on 4/21, when it traded all the way back up to $13? Were they big institutions or banks? If so it seems like they had the most incentive for what happened because they were still allowed to hold the contracts on 4/21 and was able to close out before expiration.

By the way below is a screenshot from Thinkorswim showing substantial volume for the contract on the 4/21 nearing expiration.

I also don't understand. It was widely discussed that the negative day was the last trading day, but the next day it still seemed to be trading (below and above 0 from what I remembered). Maybe an oil expert can chime in...

 

[Overnight]

I also don't understand. It was widely discussed that the negative day was the last trading day, but the next day it still seemed to be trading (below and above 0 from what I remembered). Maybe an oil expert can chime in...

LTD is the 3rd business day before the 25th calendar day of the month preceding the contract month. If the 25th falls on a non-business day, trading stops on the 4th business day before the 25th calendar day of the month preceding the contract month. That was April 21.

 

[qwerty11]

Yeah, but the actual question is if it did trade after the -$37.63 settlement.

Coincidentally I just read this:

Oil futures have remained volatile throughout the week. The May contract bounced back above zero on Tuesday before it expired, while the June contract fell by more than 40%. On Wednesday, June futures surged by 19%.

https://www.cnbc.com/2020/04/22/cme...nd-its-no-secret-futures-can-go-negative.html

 

[329200]

Have Investors Been Misled By The Oil Price Crash?

https://oilprice.com/Latest-Energy-...stors-Been-Misled-By-The-Oil-Price-Crash.html

Negative Oil Has Hamm’s Continental Invoking ‘Act of God’ Clause

https://www.bloomberg.com/news/arti...rer-invokes-force-majeure-citing-negative-oil

 

[329200]

Yeah, but the actual question is if it did trade after the -$37.63 settlement.

Coincidentally I just read this:

Oil futures have remained volatile throughout the week. The May contract bounced back above zero on Tuesday before it expired, while the June contract fell by more than 40%. On Wednesday, June futures surged by 19%.

https://www.cnbc.com/2020/04/22/cme...nd-its-no-secret-futures-can-go-negative.html

Appears it did. The -$37.63 was settlement on 4/20, the retail firms stated that since they do not support delivery you couldn't trade it on the last day which was 4/21. Essentially it seems like this rule allowed extreme price movements to happen on Monday, and eliminated retail from being able to get out of their negative losses on Tuesday.

 

[southall]

With IB was it possible enter a market sell order when the price was negative in WTI?

 

[Overnight]

With IB was it possible enter a market sell order when the price was negative in WTI?

Let's just not have this intellectual exercise on negative prices any longer? Oy! Negative prices of energy are just bad juju for the world. Be glad for now that it happened for one day only.

Like a ping. One ping only please.