MCX fixes 'negative' due date rate for crude oil futures to reflect NYMEX quote

After facing flak for fixing an interim settlement rate of Re 1 per barrel for crude oil futures despite a benchmark international market rate for May 2020 contract dipping into negative zone, India's leading commodity exchange MCX on Tuesday fixed Rs (-) 2,884 a barrel as its final due date rate for the contract that expired on Monday.

New Delhi/Mumbai: After facing flak for fixing an interim settlement rate of Re 1 per barrel for crude oil futures despite a benchmark international market rate for May 2020 contract dipping into negative zone, India's leading commodity exchange MCX on Tuesday fixed Rs (-) 2,884 a barrel as its final due date rate for the contract that expired on Monday.

Crude oil futures contract price had plunged into negative territory in the international market for a particular month contract on Monday, but India's leading commodity exchange MCX had fixed an interim settlement price of Re 1 per barrel -- a move some traders said would help big brokers avert losses amounting to hundreds of crores of rupees at the cost of others having taken a short position.

In an updated circular issued on Tuesday evening, the Multi-Commodity Exchange of India (MCX) said it has now fixed the "due date rate of crude oil futures contract, expired on April 20, 2020" at Rs (-)2,884 per barrel.

The exchange further said the crude oil futures contracts are traded in MCX for the last 15 years and the said contracts are always settled at due date rate as specified in the contract specification, that is the New York Mercantile Exchange's (NYMEX) WTI Crude oil front month contract's settlement price converted into Indian rupee.

"The crude oil futures contracts expired on April 20, 2020 are also being settled on NYMEX WTI crude oil front month contract's settlement price (that is minus USD 37.63) converted into Indian rupee (RBI USD-INR reference rate: 76.6335) and rounded off to the nearest tick."

"The final settlement on account of the difference between the provisional and the final settlement price shall be accounted in the obligation for trade date April 21, 2020 and settled on April 22, 2020," the circular said.

On Monday, the NYMEX WTI Crude futures May 2020 contract had settled at an unprecedented USD (-)37.63 a barrel, after slipping into the negative zone on fears of fast-filling storage facilities globally and an unprecedented plunge in demand due to the novel coronavirus pandemic.

MCX had, however, said on Monday that due to the unprecedented price fluctuation in the international markets in crude oil, the due date rate for crude oil futures contract expiring on April 20, 2020, was under finalisation.

"In the interim, the provisional settlement price for April 20, 2020, is considered as Re 1 per barrel for the computation of members' obligation for trade date April 20, 2020. Differential settlement, if any, on fixation of the final settlement price shall be done subsequently," it had told its members on Monday.

Traders had said MCX crude has open positions of 11,522 contracts, meaning 11,522 open positions on expiry were outstanding. Also, since the number of futures buy positions should equal the number of futures sell positions, there would be 11,522 sell or short positions at the time of expiry of the contract.

Several traders said MCX's decision to fix a settlement price of Re 1, even on an interim basis, could have led to people holding these 11,522 short positions losing their legitimate gains, while others could have averted huge losses amounting to hundreds of crores of rupees.

Officials said an investigation is still underway to determine whether the MCX's interim actions were to help provide undue gains to a select few by averting their losses at the cost of other genuine traders.

(PTI Report)