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Miffed with MCX’s decision to settle its April crude futures contract with negative pricing for the first time in the history of commodity trading, leading broking firms, including Motilal Oswal Financial Services and Religare Securities, have filed writ petitions in High Courts against the exchange and against market regulator SEBI.
MCX, which initially announced a provisional settlement price of ₹1 for the crude oil futures contract that expired on April 20, later calculated a price of (-)₹2,884 per barrel, leading to investors losing about ₹435 crore.
The exchange did not heed pleas by brokers to delay the settlement process as most of the investors could not be reached to recover funds due to the ongoing lockdown, said a broker.
The exchange went ahead to debit the money from brokers’ accounts to settle the contract, he added.
MCX did not respond to queries from BusinessLine .
Gurpreet Sidana, Chief Operating Officer, Religare Broking, said in the interest of clients, the broking firm has moved the Delhi High Court and filed a case related to the negative settlement price of the crude contract.
The petition was against the MCX circular that settled the crude oil price at a negative ₹2,885, he said, without offering further details as the matter is sub judice.
‘Incorrect stand’
Confirming that the petition has been filed in the Bombay High Court, an official from Motilal Oswal Financial Services said the stand taken by the exchange was incorrect, illogical and unprecedented from the perspective of the overall commodity derivatives market.
“We feel gross injustice has been done to our clients and hence we have no option other than to go for legal recourse,” he said.
“Even today we will not be able to execute a trade to buy or sell at negative rates. We are only trying to help the interest of investors who have paid the full value of the contract and still have to pay 300 per cent more because of negative closing in international markets, which is delivery settled, whereas in India it is cash-settled and hence should be settled at a rate not below ₹1,” he added.
Brokers collected 100 per cent margin from clients after the crude oil contract fell sharply from ₹965 a barrel to zero a day before it expired, but they never expected the exchange to fix a price below zero as such a thing had never been heard of in India.
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