The CME Vulnerability:The Impact of Negative Oil Futures Trading

Edited by George Xianzhi Yuan

in World Scientific Books from World Scientific Publishing Co. Pte. Ltd.

Abstract: In 2020, the global lockdowns caused by the COVID-19, or coronavirus, pandemic had resulted in a sharp drop in demand for crude oil. This impact was so severe that on April 8, 2020, a proposal to update the Chicago Mercantile Exchange Holdings Inc. (CME) trading rule to permit negative prices was applied to CME's WTI Oil futures contracts; this led to a novel phenomenon in which the closing clearing price of WTI Oil May future was $–37.63/barrel based on fewer than 400 contracts' trading volume in the last three minutes, reflecting less than 0.2% of the total trading contracts volume on April 20, 2020. This occurrence of negative closing clearing price for CME's WTI Oil futures trading, cannot be explained simply by just the principle of supply and demand; instead, it highlights vulnerabilities caused by CME's allowance of negative price trading (based on its trading platform), a decision which brings potential and fundamental challenges to the global financial system.

Keywords: CME; Vulnerability; WTI; Oil; Trading; Rule; 420; Negative Trading Price; Best Practice; Valuation; Risk Management; Regulatory; Rule; Accounting; Standard; Fair Value; Trading Behaviour; Covid; Corona (search for similar items in EconPapers)
JEL-codes: G1 G10 G17 G32 (search for similar items in EconPapers)
Date: 2020
ISBN: 9789811223198
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https://www.worldscientific.com/worldscibooks/10.1142/11908 (text/html)
Ebook Access is available upon purchase

Chapters in this book:

Ch 1 The Overview of WTI Crude Oil Futures’ Epic Fall , pp 3-49

Chern Lu

Ch 2 The Better Way for CME’s Execution: Based on the Perspective of Industry’s Best Practice Rule , pp 51-67

Rongbing Huang and George Yuan

Ch 3 Impact of Negative Oil Price on Risk Measuring , pp 69-83

James Zhan

Ch 4 Three Legal Reflections on the “Crude Oil Treasure” Incident: Starting with the CME Rule Change , pp 85-101

Duoqi Xu, Peiran Wang and Yicheng Wang

Ch 5 Why Oil Prices Plunged and Settled Negative: A Game-Theoretical Perspective , pp 105-130

Chenghu Ma and Xianzhen Wang

Ch 6 Tanker Shipping and Negative Oil Prices: More Than Just the Freight Rates , pp 131-146

Cong Sui and Mo Yang

Ch 7 Option Pricing with Shifted Lognormal Model for Negative Oil Prices , pp 147-153

Henry Yang

Ch 8 The Paradox of Negative Oil Prices , pp 155-162

Bin Zhu

Ch 9 The Challenges of Negative Oil Future Price Posed to Risk Managers and Quants , pp 165-195

Michael Peng

Ch 10 Negative Asset Pricing and Moral Hazard , pp 197-214

Weiping Li

Ch 11 The Bachelier Model: Option Pricing with Negative Strike and Asset Price , pp 215-222

You Zhang and Lingtong (Stanley) Meng

Ch 12 Blockchain-based Options for Physical Settlement of Commodity Futures , pp 223-251

Yali Chang, Jianwu Lin and Chengying He

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