CFTC Commissioner Dan M. Berkovitz called on the CFTC to establish appropriate limits on "trading-at-settlement" ("TAS") transactions in the oil markets. Mr. Berkovitz's comments came in response to a filing by NYMEX to self-certify increases in the speculative position limits for West Texas Intermediate ("WTI") crude oil futures.
Mr. Berkovitz criticized NYMEX and the CFTC for not taking sufficient action to impose restrictions on the speculative use of TAS contracts (which are an order type that enables market participants to execute orders during a trading day and have them filled at a differential to the order's settlement price) during a contract's "spot month."
Mr. Berkovitz said that such limits are necessary because TAS contracts could be used to manipulate the price of WTI futures. (They were traded in abundance during the collapse of WTI futures in April 2020.) In particular, he highlighted the ability to net TAS positions against other positions in the same commodity contract to remain under position limits arguing the risks associated with parties holding large open positions with unknown value until the determination of the settlement price. He cited (1) recent enforcement actions that the CFTC has brought relating to the use of TAS orders to manipulate WTI crude oil prices and (2) a blog post by an academic, finding that TAS may "create opportunities for profitable trade-based manipulation. . . ."
Mr. Berkovitz characterized the CFTC's report on the crash (see previous coverage) as being "incomplete, inadequate, and fail[ing] to determine the cause of the unprecedented plunge." Additionally, Mr. Berkovitz criticized the CFTC's final rule on position limits (see previous coverage) for failing to address the risks associated with TAS contracts.
Mr. Berkovitz encouraged exchanges that allow TAS to establish limits on the netting of TAS by speculators, but said that the CFTC should impose such limits if the exchanges do not act.
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