I commend the Division of Market Oversight and the Office of the Chief Economist for issuing today’s Staff Report on the April 20, 2020 trading in the West Texas Intermediate Light Sweet Crude Oil Futures contract (WTI Contract) on the New York Mercantile Exchange (Staff Report).

The events of April 20 and the Staff Report discussion raise some serious questions regarding the Commission’s existing policy and recent rulemaking efforts.  Just last month, the Commission issued a final rule regarding position limits (the Position Limits Rule).[1]  During the public comment period for the Position Limits Rule proposal, which remained open until May 15, the Commission received at least eight comments that addressed the events of April 20.  Rather than appropriately address these comments and the intrinsic issues raised in the Position Limits Rule, the Commission instead compartmentalized the significance of the underlying factors at issue with regard to the findings and directives relevant to the establishment of position limits in section 4a(a) of the Commodity Exchange Act.  Seemingly without hesitation, it stated that it would “continue to analyze the events of April 20 to evaluate whether any changes to the position limits regulations may be warranted in light of the circumstances surrounding the volatility in the WTI contract.”[2] 

Beyond position limits, the Staff Report also may have implications for the Commission’s proposal regarding Electronic Trading Risk Principles, which the Chairman has indicated will be considered by the Commission in December.[3]  In my dissent to the Electronic Trading Risk Principles proposal, I expressed concern that the proposed three principles would not require designated contract markets (DCMs) to do anything new – that the preamble essentially would function as a blessing of the status quo.[4]  The events of April 20 triggered both dynamic circuit breakers and velocity logic – exactly the type of risk controls discussed in the proposal that preceded the Electronic Trading Risk Principles proposal, commonly referred to as  “Regulation AT,” which was formally withdrawn at the Chairman’s direction and without my support.  In considering Electronic Trading Risk Principles, the Commission must consider the effectiveness of these risk controls during trading around April 20—there is arguably no better test case.  If the risk controls were effective, we should consider whether more specific risk controls along these lines should be part of the Electronic Trading Risk Principles, in order to be certain that all DCMs are prepared to maintain orderly trading during such a confluence of events.  If they were not, we should consider whether stronger risk controls are necessary.