Three leading Brokerages namely Motilal Oswal Financial Services, PCS Securities and Religare Securities, have jointly moved to Bombay High Court against the Multi Commodity Exchange (MCX) and the Securities and Exchange Board of India (SEBI), seeking redress on negative settlement of crude oil price.
The Indian Commodity markets were closed for trading after 5pm on 20th April, and therefore, the local traders were unable to exit their positions. On the same night, crude oil price in the US plunged to minus $37.63.
Crude oil contracts on MCX reflect oil prices on the New York Mercantile exchange. Following the historic crash in oil prices, MCX made a settlement on oil price of minus Rs. 2884 per barrel for its contract which expired on April 20, against the closing price of Rs. 995 per barrel.
MCX has initially announced a provisional settlement price of Rupee 1 for its contract but later settled minus Rs. 2884 as its final price. This settlement has exposed the brokers to a potential loss of Rs. 435 crore.
The brokerages have contended that no commodity exchange in India, including MCX, has any provisions to trade commodities or stock by assigning a negative value to it.
They added, that the circular has adverse and far-reaching consequences, like unreasonable and undue profits to one segment of investors to the detriment of others, which is unhealthy and against the spirit of a regulated ecosystem.
The petitioners are seeking a stay on the settlement contract till final orders, contending that assigning a negative value is arbitrary and illogical and it demonstrates utter disregard of basic principles and fundamentals of the settlement system in India.
The MCX has announced completion of pay-in and payout, and that pay out of Rs. 242.32 crore has been made. The pay-ins were completed with the brokers’ margin lying with the exchange.
MCX have also said that several global exchanges have also settled the crude oil prices at the same negative priceand that’s why there is no reason why India shouldn’t.
The outcome of the petition is still pending.
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