MCX offers exit option in event of negative crude price

Mumbai: MCX will offer an exit option to traders in case the internationally referenceable Nymex contract it mirrors hits negative territory again. This indicates modification of its software to facilitate negative pricing will be time consuming , said a market participant. The bourse is consulting with its software vendor 63 moons for tailoring the software to enable negative price punching.

The bourse will offer exit option through an auction window daily , the modalities which will be spelt out shortly.

MCX trades from 9-11:30 pm daily and trading in international contracts becomes active in the evening.

At the auction, only squaring off of existing positions will be allowed. No fresh positions can be taken, MCX said in a circular on April 30. Through another circular it said an auction would be provided daily to offer those wanting an exit.

The circulars were issued amid brokers representing clients on the buy side dragging the exchange and its clearing corporation to court for settlement of April expiry contract at a negative Rs 2884 a barrel after MCX closed at constricted time of 5pm on April 20 to abide by lockdown rules. The timing of the exchange was restored to normal shortly thereafter.

“Positions squared off on account of successful bids in the auction session shall be settled at the price determined during the auction session. In terms of Bye Law 8.8.6.3, the Daily Settlement Price of the contract shall be fixed based on the close price prevailing at the international referenceable market (NYMEX price) converted into Indian Rupees. In such cases, the value of Rs.1/- shall be reflected as the close price in the daily reports sent to the members. The differential settlement between Rs.1/- and the Daily Settlement Price on the balance open positions shall be reflected under the head “MTM difference” in the obligation reports,” the circular said.

“There shall be no change in the settlement mechanism of options contracts.“

The circular applies prospectively and won’t affect the settlement of past contacts/settlements , the bourse said.

Kishore Narne , associate director at Motilal Oswal Financial Services, which has challenged MCX in court , said the same action could have been taken before the contract hit negative territory. He added that those having access to Nymex price Quotes were unlikely to accept bids (from buyers wishing to square off ) at a lower rate than Nymex price.