With software updates, MCX to allow negative trading prices

MCX has updated its software system to quote and trade at minus prices, more than a month after it controversially settled crude oil contracts.
crude oil contracts

Mumbai, May 24 (PTI) The Multi Commodity Exchange (MCX) has updated its software system to quote and trade at minus prices, more than a month after it controversially settled crude oil contracts at a whopping negative price of Rs 2,884 a barrel.

The new software would enable MCX brokers to trade in negative/ minus prices or below Re 1 for crude oil and other commodities.

On Sunday, the exchange said it would conduct mock trading after the new software is approved by the regulator, and then trading can happen in negative price.

“We’ve revised our Application Programming Interface (API) to accept negative prices in the system. The API has been shared with empanelled vendors and members developing software in-house,” MCX said in a circular.

On April 21, the bourse made a trade settlement at negative price of Rs 2,884 a barrel after the New York Mercantile Exchange had settled the trade at USD 37.64 a dollar on April 20, first time in the history of crude trading of over a century.

MCX prices are linked to that of Nymex.

The exchange settled the price in the minus even as its software was not permitting negative price trade. But it had do so as the contract term was to be settled at Nymex crude prices.

Following the negative price settlement, four MCX brokers dragged it to the high courts of Bombay, Delhi, Gujarat and Hyderabad. However, none of the courts gave any interim orders against the exchange.

After the negative settlement, several investors collectively lost around Rs 400 crore, forcing many of them to discontinue crude trading while some increased margins significantly for crude futures.

MCX controls over 94 percent of crude trade in the country.

According to the circular, several trading softwares which brokers are using would have to be updated and tested. After all trading software are approved mock-trading would be done and then trading can happen in negative prices.

This could take longer depending on how brokers and software vendors are able to do it at their end. These are front-end software like ODIN or many others, MCX said.

Following the negative price settlement controversy in April, MCX allowed traders and brokers to exit options before the negative prices kicked in.

“On any trading day, if the price of crude contracts freeze at the lowest price (that is Re 1) in the trading system and remains at the same level during the last 15 minutes of trading (currently 11.15 pm to 11.30 pm) and the corresponding international reference contract is trading in negative price, then the exchange will provide an additional facility,” MCX said in a circular on May 11.

Under this facility, a separate auction session would be conducted for the futures contracts to facilitate traders to close out or square off their open positions, and this facility would not be available on expiry day of the contracts, the circular had said.

Within a week of the MCX controversy, BSE revised its norms to allow oil prices to be traded in the negative by modifying its BOLT Plus trading system to accept orders and execute trades at negative prices.

“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,” BSE, which is the oldest stock exchange in Asia, had said on April 28.

Source: PTI

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