BSE, the country’s oldest stock exchange, has inserted a provision for negative pricing in its commodity derivative trading segment even as the controversy over MCX settling its crude oil at negative $37 a barrel is still ragging.
The feature will be enabled in the simulation environment and made available to BSE members to test from Monday, said the exchange.
In a note to investors, BSE said this is in pursuant to recent global developments in the crude oil derivatives markets where trading of derivatives contracts happened at negative prices owing to various underlying factors.
The exchange informed the commodity trading members on Tuesday that its BOLT Plus trading system has been modified to accept orders and execute trades at negative prices.
To facilitate testing of this feature in the simulation environment, trading price range of Brent crude oil futures contracts has been suitably updated to accept orders at negative price levels and execute trades, it said.
Accordingly, trading members and front-end trading application vendors shall be able to place test orders and trade in these contracts at those price levels. This will help members in checking the readiness of their internal systems and make suitable modifications, it said.
The country’s largest commodity exchange MCX is in the process of providing negative pricing facility even as it is facing a slew of investors’ legal suits over negative settlement of crude contract early this month.
Narinder Wadhwa, President, Commodity Participants Association of India, said while the BSE move on contract specifications and infrastructure capability in trading platform for negative rates bring in much-needed clarity especially after the recent crude oil fiasco on MCX and NYMEX.
“With the crude prices dipping to an unprecedented negative $37 this month, we have realised that MCX and NYMEX contracts are not comparable and cannot be used as settlement reference rates. While NYMEX contracts are deliverable, it is cash settled here. In our opinion MCX contract should have been settled at ₹1 instead of negative pricing,” he said.
Sriram Iyer, Senior Research Analyst, Reliance Securities, said the development in BSE will make the commodity trading on the Indian exchange platform ready for any black swan events as witnessed in the last few weeks on NYMEX.
“We hope other Indian exchanges too implement such systems soon,” he said.