Brokers plan to sue MCX over negative price settlement of April crude

MCX said that it had settled the contract according to the formula in the contract, which has been followed for the last 15 years

With the MCX announcing a price of –Rs 2,884 (minus) as settlement of the April crude oil contract which expired yesterday, more than 100 brokers are estimated to have lost over Rs 450 crore. Hardly 12-15 brokers, most of whom are algo players, have got credit, according to reliable information.

In view of these developments, some brokers are considering to challenge the MCX settlement price decision in a court of law. Meanwhile, since these brokers have to pay the difference as the per final settlement price to the clearing corporation of the exchange, their margins lying as credit with the clearing corp were blocked today afternoon. As a result, they were not able to trade but were only allowed to square off positions to garner extra credit for paying the shortfall in margin requirements.

Sources explained that some major brokers, who also have retail client business, are among those considering moving court. MCX has said that it settled the contract as per a formula followed for the past 15 years.

However, brokers contend that such contract were allowed to be traded till at 11:30pm, which was the official closing of trade for the day. But that deadline has now been curtailed due to lockdown. Secondly, the MCX system is not capable of handling negative prices even if the day were to have ended at 11:30pm.

Nymex had announced on April 15 that it had enabled its systems to trade negative prices. So under no circumstances would the MCX contract have been in negative. MCX has conveyed to the participants that at the exchange level there is no issue regardimg pay-in pay-out and even the settlement guarantee fund will not be required to used.

What is a negative settlement. It is the kind in which, had tradimg taken place, the seller would have to pay  the buyer for lifting stocks instead of receiving anything from him.