With the major U.S. equity markets embracing extended trading days, derivatives markets are following suit — with the U.S. derivatives regulator, the Commodity Futures Trading Commission (CFTC), launching a consultation on the implications of expanding trading in energy derivatives.
The CFTC issued a paper seeking feedback on two related developments — the extension of standard futures contracts to 24/7 trading, and the potential listing of perpetual contracts that reference physical energy commodities, such as crude oil, which have no set expiration and use a periodic pricing mechanism to maintain parity with the underlying spot prices.
Among other things, the regulator is soliciting comment on the implications of these developments for the reliability of energy prices, the risk of market manipulation, market surveillance, operational readiness and investor protection — and the impact on the underlying physical commodity markets.
The CFTC has previously consulted on 24/7 trading for traditional futures contracts and is now seeking further feedback on the issue.
In particular, it noted that the prospect of continuous trading of standard futures contracts “raises questions concerning the liquidity, reliability and susceptibility to manipulation of prices formed during overnight, weekend and holiday periods” — and the impact of after-hours prices on commercial agreements, ETFs and other derivatives.
It’s also seeking added feedback on the surveillance and operational arrangements needed to monitor trading at all hours; and, how settlement and payment will work when traditional payment mechanisms aren’t operating.
Additionally, it’s contemplating the prospect of perpetual contracts on traditional commodities. Last month, the CFTC approved the listing of perpetual contracts based on bitcoin, but explicitly restricted the use of these vehicles to digital assets. Now, it’s considering the implications of perpetual contracts on energy products.
“As registered entities extend trading hours and introduce new contract designs, a clear, data-driven record will help the commission better understand these developments’ implications and impact in the market,” CFTC chairman Michael Selig said in a release.
“This request reflects the commission’s commitment to supporting responsible innovation, while preserving the protections against manipulation and market disruption that participants and the public rely on,” he added.
The consultation will be open for 30 days following its publication in the Federal Register.