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The Rajasthan High Court (HC) on Monday issued a notice to the Centre over the negative pricing of April month crude oil contracts by Multi Commodity Exchange (MCX). It has asked the Attorney General to reply within two weeks.
The notice was issued after a broker, Ganganagar Commodity, made the Central government a party to its petition.
In April, large retail and high net-worth traders suffered a loss of around ₹442 crore due to MCX’s move to set a negative price for its monthly expiry contracts even when the last trading price was frozen at ₹965 per barrel. The final settlement price for April’s expiry crude oil contracts was set at negative ₹2,884 by MCX the next day.
The exchange reasoned that it takes its final settlement price of crude oil futures from the US-based NYMEX. The crude oil futures price on NYMEX that day fell to negative $38, based on which MCX set its price to a negative amount after considering the rupee-dollar conversion rate.
Brokers upset
However, brokers are up in the arms against the exchange, saying its software did not allow any insertion of negative bids for commodity futures. There was no provision for negative price spreads in the MCX software, they say, and hence the exchange cannot set negative pricing.
MCX on April 20 had set ₹1 as the temporary base price. The profits from negative pricing of crude oil futures have accrued largely to traders who use high-frequency algorithms, who also participate in the international crude market. Reportedly, government agencies are investigating the matter.
“I have considered the submissions. While the Additional Solicitor General had been mentioned for appearance but could not be contacted, no caveat has been filed by the respondents. Reply will be filed within two weeks,” said Justice Sanjeev Prakash Sharma of the Rajasthan High Court.
Closing time
The judge said the petitioner had submitted that the closing time for trading was 5 pm, whereas the amount had been recovered by keeping trading open up to 11.30 pm, resulting in a loss, as the barrel rate of ₹965 was reduced to minus ₹2,884.
“Learned counsel submits that action was contrary to the guidelines laid down by SEBI, and the provisions of Section 56 of the Disaster Management Act could not have been used for bringing negative rate, resulting in a huge loss to the petitioner. Learned counsel further submits that while the amount has been recovered, no further coercive steps should be taken against the petitioner,” the court said.
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