The U.S. Commodity Futures Trading Commission (CFTC) is reportedly preparing to block the CME Group from launching a 24-hour crude oil contract through a fast-track self-certification process. Regulators are concerned that the energy market is not yet ready to accommodate more derivatives traded outside of traditional trading hours, especially on weekends and traditionally closed trading days.
The fast-track procedure may be suspended.
According to the Financial Times, the CME Group submitted a self-certification application for its new product to regulators on Wednesday. Under this process, the CFTC has only one day to intervene before the contract is listed.
Sources familiar with the matter say the CFTC plans to block the application. Meanwhile, the CME Group has also submitted another routine application for the same product, a process that requires 45 days of review and is currently under regulatory scrutiny.
The regulators' main concern is that rapidly approving these 24/7 mini-contracts could pave the way for more and larger-scale derivatives. Market liquidity and price discovery mechanisms might not be able to adapt quickly enough to handle the surge in trading during what would normally be closed periods.
The new contract targets weekend risk management.
In June, the CME Group announced plans to launch a 10-barrel futures contract linked to WTI crude oil, offering 24/7 trading. Compared to the standard 1,000-barrel crude oil futures contract, this product has a lower entry barrier and is primarily aimed at traders who want to adjust their positions promptly in the event of unexpected news.
Amid heightened tensions between the US and Iran and increased oil price volatility, market attention has clearly intensified towards more flexible trading tools. The traditional weekend closure of the crude oil market has also made some investors more concerned about risk exposure outside of trading hours.
- The new product is available in quantities of 10 barrels.
- Standard WTI crude oil futures contracts are 1,000 barrels in size.
- The standard approval process takes 45 days.
Weekend trading demand is rising
The report mentions that Singapore-based Hyperliquid offers leveraged perpetual crude oil contracts. These products have attracted significant trader participation during the traditional crude oil market closure, reflecting the real need for price risk management over the weekend.
Some energy market participants believe that government actions, extreme weather, and industrial accidents can all occur over the weekend, requiring market participants to trade immediately upon receiving news rather than waiting for traditional markets to reopen. Jorge Montepeque, an oil analyst at Onyx Capital Group, stated that a 24/7 market has its merits, but the key remains whether sufficient liquidity can be generated.
The CME Group stated that smaller products, such as 10-barrel crude oil contracts, typically use a self-certification process. At the request of the CFTC, the exchange has also submitted the longer-processing standard application.
The CFTC has recently been making frequent contacts with energy companies.
In recent weeks, CFTC Chairman Michael Seliger has met with executives from several energy companies, including Shell, Vitol, BP, and ExxonMobil. Before officially granting approval, regulators are clearly still assessing whether the market can function stably after energy derivatives are expanded to 24/7 trading.
