CFTC seeks public views on 24/7 trading, perpetual contracts in energy markets

The US Commodity Futures Trading Commission has asked for public input on allowing perpetual contracts and 24-hour trading in energy markets, seven days a week.

The commission raised a host of concerns about the implications for potential market manipulation, efficient price formation, and existing energy markets in 67 questions posed to the public.

The request for comments within 30 days comes after major futures exchange operator CME Group announced on June 11 plans for a smaller-sized US futures contract for crude oil that would trade 24 hours, seven days a week. CME did not immediately respond to a request for comment on the CFTC's new solicitation of public input.

The inquiry also follows the CFTC's landmark May 29 order approving the first perpetual contract in the US referencing a spot cryptocurrency price. The agency said at the time that perpetual contracts referencing asset classes the order had not contemplated would be evaluated on a case-by-case basis.

The CFTC inquiry, announced June 22, addresses two distinct matters related to energy derivatives: extending standard futures contracts to 24-hour trading seven days a week without changes to the fixed expiration, delivery, and settlement terms; and the listing of perpetual contracts referencing physically delivered or storable commodities, such as crude oil.

While such new products are often viewed as drawing retail, rather than commercial and institutional, interest for now, the CFTC is also asking about broader market implications.

The agency sought input on the potential to increase susceptibility to manipulation or affect the reliability of reference prices. It asked for data-driven responses and analysis, rather than "conclusory assertions."

The regulator also asked about the impacts on the underlying physical energy markets and on commercial participants that rely on them. Some of the CFTC's questions sought views on challenges posed by the around-the-clock trading for market surveillance, position limits, margin, clearing, and other matters.

CFTC Chairman Michael Selig said a "clear, data-driven record" would help the commission as registered entities extend trading hours and introduce new contract designs.

"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 said in a June 22 statement.

Around-the-clock trading

On extending futures contracts to 24-hour trading, seven days a week, the CFTC is asking whether liquidity in the overnight and weekend sessions will be sufficient to support reliable prices that are not readily swayed by manipulation.

"What data or empirical evidence is there that sufficient natural liquidity exists during weekend trading periods to support orderly markets and efficient price formation?" the agency asked.

It also asked how energy prices set during extended hours would impact over-the-counter derivatives, physical commercial contracts that incorporate futures prices, benchmark calculations, and major market indexes.

Some questions concerned how payment arrangements might work for margin calls during extended hours, when traditional payment systems are unavailable.

Other questions concerned the potential for one-sided retail or broader investor interest during weekend trading to distort price formation and influence broader markets.

"Is it a concern that price formation in a smaller contract that trades 24/7 may influence the larger benchmark contract that trades during traditional hours, especially during those periods when the larger contract is unable to participate in the price-setting process?" the CFTC asked.

The question regarding smaller contracts comes as CME Group said June 11 it plans to launch a 10-barrel West Texas Intermediate crude oil contract starting Aug. 30. The contract would be cash-settled and available for trading 24 hours a day, seven days a week.

Perpetual contracts

The agency posed 37 questions about perpetual contracts. It has characterized those as having no fixed expiration date and relying on a periodic funding rate mechanism to keep relative price parity with the underlying asset's spot price.

Some questions concerned how the around-the-clock, perpetual funding structure would align with the CFTC's factors for establishing that a cash-settlement price is not readily susceptible to manipulation.

"Is there a cash price series for crude oil, or for specific grades, that satisfies those factors and that could serve as a reference price observable at every funding interval?" the agency asked. "Are there reference-price methodologies outside of the digital-asset context which could provide 24/7, manipulation-resistant observability at every funding interval, including during overnight and weekend periods of reduced liquidity?"

Other questions addressed whether, for physically delivered or stored energy commodities, a perpetual contract would serve hedging or risk-management needs not already met by existing derivatives.

The regulator also sought views on how regulations, such as position limits, meant to prevent energy market manipulation, would fit with perpetual contracts.

As for margin requirements, the regulator asked how margin models should account for "the risk that continuously accruing funding obligations become large or volatile during stress—and for the ongoing nature of that obligation given the absence of expiration,"

The CFTC's targeted request for public comment specific to energy markets follows its two broader requests for feedback on 24-hour, seven-day-a-week trading and perpetual markets in 2025.

Some energy sector interests in 2025 cautioned the CFTC that perpetual derivatives were decoupled from market fundamentals and could harm the well-functioning markets for commercial hedging in the energy and agricultural sectors.