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A day trader who bought hundreds of oil contracts was told he owed $9 million after a trading platform issue meant it failed to show oil’s historic plunge below $0
Mario Tama/Getty Images
A day trader who bought hundreds of oil futures contracts during its historic price crash last month was told he owed $9 million after a technology issue prevented his trading platform from displaying negative oil prices, according to a report from Bloomberg.
The record-setting oil crash last month led to traders using Connecticut-based brokerage firm Interactive Brokers being told of huge losses incurred when the commodity went below zero, despite not knowing it was in negative territory.
After the crash — which sent oil to a record low of -$37 — Syed Shah, a 30-year-old day trader from Toronto, received a traumatic notification from Interactive Brokers saying he owed the firm a whopping $9 million.
He had started the day with $77,000 in his account, Bloomberg reported.
As oil crashed into negative territory, Shah bought 212 oil futures contracts for what he thought was one cent per barrel, not realising that oil was actually trading at negative $3.70 per barrel.
“I was in shock,” Shah told Bloomberg. “I felt like everything was going to be taken from me, all my assets.” Shah told Bloomberg he didn’t sleep for three days after the incident.
Thomas Peterffy, founder and chairman of Interactive Brokers, said that oil’s journey into negative territory revealed existing bugs in the company’s software.
“We will rebate from our own funds to our customers who were locked in with a long position during the time the price was negative any losses they suffered below zero.”
In another incident thousands of miles away in Europe, Interactive Brokers customer Manfred Koller faced a similar situation to Shah, according to the report.
Koller, who lives near Frankfurt, Germany, reportedly purchased oil contracts for his friends at $11 and between $4 and $5 that same day on the Interactive Brokers platform. His trading screen froze just after 2.00 p.m. ET.
“The price feed went black, there were no bids or offers anymore,” Koller told Bloomberg in an interview. But according to his trading account, he had nothing to worry about since trading had closed for the day.
The fact that derivatives exchange CME Group’s benchmark oil contracts could go negative was widely known. The platform, where the trading took place, had alerted all its member firms that they should test their systems for negative pricing.
The alert said: “If major energy prices continue to fall towards zero in the coming months, CME Clearing has a tested plan to support the possibility of a negative options underlying and enable markets to continue to function normally.”
While Peterffy acknowledged that Interactive Brokers received this notification, he told Bloomberg his firm’s software needed more time to upgrade.
Representatives of ICE and CFTC did not immediately respond to a request for comment by Markets Insider.
You can read the full story of Interactive Brokers’ problems at Bloomberg.
Author: finanzen.net GmbH
UK-EU trade talks resume ahead of June summit
Talks between the UK and EU over a post-Brexit trade deal will enter their third round later, ahead of a decisive summit next month.
Both sides are due to decide by the end of June whether the current deadline for negotiating an agreement should be extended beyond the end of December.
The UK has said it will not agree to an extension, even if the EU requests one.
The latest round of talks, to be held via video link, will end on Friday.
After the latest round in April, EU chief negotiator Michel Barnier said progress had been disappointing, whilst the UK said only “limited progress” had been made.
There are differences between the two sides on fisheries, competition rules, police co-operation, and how a deal would be enforced.
BBC Europe Editor Katya Adler said the EU accuses the UK of concentrating on its priorities whilst going slow on issues more important to the 27-member bloc.
She added that the UK wants to first settle a core trade deal alongside deals on aviation and energy, whilst the EU is keen to focus on fishing quotas and competition rules.
She added that although the UK has ruled out extending the talks, leaving tricky areas to the autumn could be risky if coronavirus infections peak again.
Negotiations have been held using video-conferencing technology since last month after face-to-face meetings were cancelled due to the pandemic.
The UK has rejected the suggestion it is not engaging in all negotiating areas, accusing the EU of making demands not required of its other trade partners.
The UK is currently in a transition period under which it must follow most EU regulations, following its legal withdrawal from the bloc on 31 January.
Both sides exchanged legal text on a future trade deal in March. After the negotiations this week, a fourth round of talks is scheduled to begin on 1 June.
Under the UK’s withdrawal agreement with the EU, both sides currently have until 31 December to ratify a trade deal and rules for future co-operation.
An extension to the December deadline should be made by the UK-EU “joint committee” overseeing the agreement by 1 July.
Opposition parties including the Liberal Democrats and the SNP have both called on the UK government to extend the transition period beyond December.
Shortly after becoming Labour leader last month, Sir Keir Starmer said the UK should prolong talks beyond December if “necessary to do so”.
He added that the December deadline was “going to be very, very tight,” and he thought it “unlikely” the government would finish talks in time.
But the government insists it is committed to agreeing a deal by December 2020, and an extension would simply prolong disruption for businesses.
Singapore Exchange to scrap minimum trading price rule
SINGAPORE – SGX RegCo, the regulatory arm of Singapore Exchange, said it will scrap the requirement for companies to maintain a minimum share price (MTP) on June 1.
The MTP rule was adopted in 2016 to deter share price manipulation.
It states that a mainboard-listed company must maintain a six-month volume-weighted average share price of 20 cents and a six-month average daily market capitalisation of at least S$40 million.
Companies that do not fulfil those criteria go on a watch list and are given three years to raise their share price and their market cap or face delisting.
SGX RegCo now believes the rule is not required since implementation of a series of other tools – including the enhanced Trade with Caution alerts and Member Surveillance Dashboard – have reduced the risk of manipulation.
“The shares of most of the issuers in the MTP watch-list have not been found to be manipulated. Yet these issuers are subject to risk of a delisting as a result of the MTP rule. Issuers on the MTP watchlist have also faced challenges in borrowing from banks and developing business relationships,” SGX RegCo said in a May 11 statement.
The proposal to scrap the MTP was put up for public consultation late last year and SGX RegCo said it received broad support from market participants.
The MTP watch-list will cease to exist on June 1, 2020, and Mainboard companies on the list will no longer need to satisfy the exit criteria and apply for removal from the MTP watch-list, it said.
A spokesperson of the Monetary Authority of Singapore said the central bank supports SGX RegCo’s decision to remove the MTP requirement.
“MAS and SGX RegCo have taken a more pre-emptive and targeted approach to address the risk of market manipulation,” the spokesperson said in a May 11 e-mail .
Several measures have been introduced in the past few years to address the risk, including trading restrictions on accounts involved in unusual activities in a stock and issuing alerts to the investing public to trade in certain stocks with caution, MAS said.
The Members’ Surveillance Dashboard can now also alert SGX members to potential market misconduct relating to a member’s trades through.
In addition, SGX Trade Surveillance Handbooks and the MAS-SGX Trade Surveillance Practice Guide provide guidance to help brokerage firms improve their capabilities to detect and curb undesirable trading behaviours and disrupt potential market abuse as early as possible, MAS said.
“MAS and SGX RegCo have also stepped up enforcement actions against market manipulation and continue to work closely to enhance our toolkit to detect and deter market manipulation,” the MAS spokesperson said.
Author: OVAIS SUBHANI