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Brokerages file petition in the Bombay HC against MCX for negative settlement price of crude oil
Following the crash of the oil prices in the United States, the Multi Commodity Exchange (MCX) settled crude oil contracts at minus Rs. 2,884 a barrel which led to brokerages such as Motilal Oswal Financial Services Ltd., Religare Securities and PCS Securities Ltd jointly moving the Bombay high court against MCX.The brokerages filed a petition stating that no commodity exchange in...
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Following the crash of the oil prices in the United States, the Multi Commodity Exchange (MCX) settled crude oil contracts at minus Rs. 2,884 a barrel which led to brokerages such as Motilal Oswal Financial Services Ltd., Religare Securities and PCS Securities Ltd jointly moving the Bombay high court against MCX.
The brokerages filed a petition stating that no commodity exchange in India, including MCX, has any provision to trade commodities/stock by assigning a negative value to it. The companies have therefore sought a stay on the contract settlement till final orders.
Initially, MCX had announced a provisional settlement price of Re. 1 for its contract that ended on 20 April. However, it later calculated a price of minus Rs. 2,884 per barrel, which exposed the brokers to a potential loss of Rs. 435 crore.
According to the plea, crude futures contracts are settled in cash on the exchange, these contracts can be traded at base price of Re. 1 to say the least in case of an unprecedented eventuality. The plea further states that assigning a negative value is arbitrary and demonstrates utter disregard of basic principles and fundamentals of the settlement system in India.
The petition further added that the circular by MCX has adverse and far-reaching consequences, detrimental to the interest of the investors and the market participants of the commodity market.
It was also alleged in the petition about the truncated trading hours. On 27 March, the bourses had reduced commodity trading hours till 5pm due to the lockdown and investors were unable to cut their positions. The brokerages stated that if MCX had been open for trade, clients would have had the opportunity to exit positions as the price of the contract on NYMEX (New York Mercantile Exchange) was in positive territory till 10.30pm (India time).