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Crude Oil Outlook 24.04.20

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Brokers have started discouraging their clients from taking fresh positions in crude oil future contracts on the Multi Commodity Exchange (MCX).
They are only allowing clients to square off their existing positions. In cases where clients are initiating trades, brokers are seeking 200-400 percent margin.

The CEO of a broking company confirmed this development "Around half a dozen brokers have already started discouraging their clients from initiating any fresh position in crude oil contract from April 21. Other brokers may also join in as the risk management system does not allow such kinds (negative prices) of trade.”

Brokers are upset with the settlement of April crude oil contracts at a negative Rs 2,884 per barrel by MCXCCL. Some brokers, including Motilal Oswal Financial Services, Religare Securities, and PCS Securities, have challenged this settlement process in the Bombay High Court. The court case has adjourned the case for April 29.

Impact of the move on MCX

Over 95 percent of all trades in crude oil futures in India pass through the MCX platform. This is the second-largest traded contract on MCX after gold in terms of value and highest in terms of volume.

So, how big would the impact be on MCX? The CEO of a broking quoted above said these brokers constitute more than half the volumes in crude oil contracts on the MCX.

What’s Sebi doing about the issue?

The Securities and Exchange Board of India (Sebi), a source said, has asked the exchange to allow its software to accept negative prices, so that anybody wanting to enter a negative quote can input the same into the system, which is not possible as of now.

However, MCX may be unable to tweak its software to handle a negative price settlement in less than two months as they need to first receive it from their software vendor — 63 moons technologies and then conduct at least three-to-four mock trading sessions with brokers. This is the usual practice that exchanges follow when they carry out any major changes in their systems.



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