MCX crude oil traders stare at over ₹400 crore loss

Brokers holding on to open position of April month in crude oil futures at the Multi Commodity Exchange (MCX) are staring at a loss of between ₹400 to ₹450 crore. This is after the overnight crash in crude oil price to negative $37 for the nearest expiry contract, commodity market experts said. Market regulator SEBI has called for a review of all open position of brokers as the settlement guarantee fund of MCX is not more than ₹400 crore, the sources close to the regulatory body told BusinessLine .

In an 'interim' measure, the MCX late in the evening declared that the settlement price of its crude oil futures contract will be ₹1, which means a straight mark down of ₹964. The contracts had closed at 5pm at ₹965 but a further mark down of price for the last open position has to be calculated based on the closing price in the US market, experts said. The MCX declaration further implied that ₹1 was not the ‘final’ price and a call will be taken in consultation with SEBI."

"The differential settlement, if any, on fixation of the final settlement price shall be done subsequently," the exchange said. While those who have made a loss are seeking annulment of trades as price went negative, the counter parties that profited are arguing that this would be distortion of already set norms. Brokers are also known to be indulging in artbitrage trade and if they made a loss in India on long positions, the profits could accrue to them overseas where they held short positions, experts said.

As a rule, the final settlement price of MCX crude oil futures at expiry is based on the expiry price of nearest oil futures contract on the US exchange. As on Monday, the open position of April month crude oil contract was 11500 on the MCX. Meaning 11500 contracts need to be settled at the closing of US crude oil future price. The price of crude oil based on the nearest month contract settled in negative $37 in the US on Monday. Meaning, the 11500 contracts on the MCX will now have to be settled at negative $37 price, as is the settlement rule that the exchange follows for more than a decade, experts said.

One contract of crude oil futures on MCX has a lot size of 100 barrels. To arrive at a settlement price, one has to multiply the open position of 11,500 contracts with 100 barrels and than with negative $37 of US crude oil futures closing price.

The calculation is (37x76 = 2812) +965 = ₹3,777 per barrel. The ₹76 in this is conversion price of rupee into dollar multiplied by negative crude oil price and the total of which added with the last closing price of MCX April crude oil future price which will give the settlement price for traders. Now, this settlement price when multiplied by the open position of 11500 contracts shows those those holding the position suffered a loss of more than ₹400 crore.

MCX price calculation method

"Due date rate shall be the settlement price, in Indian rupees, of the New York Mercantile Exchange’s (NYMEX)# Crude Oil (CL) front month contract on the last trading day of the MCX Crude Oil contract. The last available RBI USDINR reference rate will be used for the conversion. The price so arrived will be rounded off to the nearest tick. For example, on the day of expiry, if NYMEX Crude Oil (CL) front month contract settlement price is $40.54 and the last available RBI USDINR reference rate is 66.1105, then DDR for MCX Crude oil contract would be ₹2,680 per barrel (i.e. $40.54 * 66.1105 and rounded off to the nearest tick)," MCX rules say.

COMMENT NOW