We said "there will be blood" after yesterday's historic collapse in crude futures prices... and now we know where the first blood is.
In a statement from Interactive Brokers Group, they admit some of their clients faced losses that were not covered (remember, futures are not like stocks where a $0 price is the biggest loss you can face)...
"...as has been widely reported, the energy markets yesterday exhibited extraordinary price activity in the New York Mercantile Exchange (NYMEX) West Texas Intermediate Crude Oil contract. The price of the May 2020 contract dropped to an unprecedented negative price of $37.63. This price was the basis for determining the settlement price for cash-settled contracts traded on the CME Globex and also on a separate, expiring cash-settled futures contract listed on the Intercontinental Exchange Europe (“ICE Europe”).
Several Interactive Brokers LLC (“IBLLC”) customers held long positions in these CME and ICE Europe contracts, and as a result they incurred losses in excess of the equity in their accounts.
IBLLC has fulfilled the firm’s required variation margin settlements with the respective clearinghouses on behalf of its customers.
As a result, the Company has recognized an aggregate provisionary loss of approximately $88 million.
The Company does not believe that any anticipated losses will have a material effect on its financial condition."
As Thomas Peterffy noted later on CNBC, "we had around 15% of the open interest in the May oil contract," which means other brokers likely have even more dramatic losses as the rest of the open interest faces losses, adding "we are going to have to learn to cope with negative futures prices."
Forward to around 1:20 for Peterffy's details:
CNBC: "Across the industry, do you think there is going to be some really serious pain?"
Peterffy: "There is about another half a billion dollars of losses that somebody is sitting on... and I do not know who those folks are."
Additionally, after the close, and following CME's move yesterday, ICE reports it has taken steps to prepare for negative trading and is closely monitoring the situation. ICE Brent options contracts will switch models to enable trading of negative strikes if there’s market demand to do so, the company said.