BSE commex segment to test negative crude price

TNN | Updated: Apr 29, 2020, 12:13 IST

(Representative image)

MUMBAI: The BSE’s commodities derivatives trading segment said on Tuesday it has changed its trading algorithms to accommodate the negative price of crude oil on its platform. BSE’s commex platform will open the system on May 4 for testing by its members, a notice by the exchange said. The move comes as issues related to the negative crude oil price in India have reached the high courts.
“This is 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. It is hereby informed to all trading members of commodity derivatives segment that exchange’s BOLT Plus trading system has been modified to accept orders and execute trades at negative prices,” the notice said.
As a result, brokers will 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, if any required.”

Commodity brokers, however, feel since the settlement of crude oil futures contracts in India is in cash, and unlike on Nymex where it’s delivery-based, the lowest price should be at Re 1 and should never dip into the negative zone.
Commodity Participants Association of India president Narinder Wadhwa said BSE’s initiative was a positive development relating to contract specifications and infrastructure capability, especially after the recent crude oil fiasco on the MCX and Nymex. “Although we have realised after this episode that they are non-comparable contracts for our settlement reference rates because of deliverability factor in Nymex. Since crude oil contracts on our exchanges are cash-settled, in our opinion it should not be negative. At lower end, it should be Re 1,” Wadhwa said.
On April 20, due to several unusual factors, the settlement price for crude futures for May delivery on Nymex had closed at a negative $37.63 per barrel. As a result, the next day MCX, which is a price taker from Nymex for its crude oil futures, had to announce the settlement price at a negative Rs 2,884. This forced buyers of this contract to pay around Rs 410 crore to the sellers.
Subsequently, several brokers approached the high courts around the country against markets regulator Sebi, MCX and the exchange’s clearing corporation, MCX-CC, with a plea to order nullification of the negative settlement price.