MCX plans to provide a special exit option for investors who are stuck with wrong trading calls in crude oil, and amended the by-laws to arrive at daily a settlement price due to increased price volatility in crude oil.
The move to provide an exit option for investors comes even as the exchange is in the process of providing a provision for negative pricing in commodities trading.
The exchange has decided to provide an additional facility to market participants to square off open positions in crude oil futures contracts.
On any trading day, if the price of the crude oil contract freezes at the lowest price ― ₹1 ― in the trading system and remains at the same level for last 15 minutes of trading (currently 11.15 pm to 11.30 pm) and the corresponding international reference market (NYMEX) is trading at a negative price, then the exchange will provide an additional facility and shall conduct a separate auction session for the said futures contract.
This auction will enable market participants to square off their open positions. Market participants will not be allowed to create any fresh open positions during the auction.
The orders matched in the auction will result in reduction of open positions and end-of-the-day open position of market participants will be generated, said MCX.
Amending the daily price settlement by-laws, MCX said the positions squared off in the auction session will be settled at the price determined during the auction session.
The Daily Settlement Price of the contract will be the close price of the NYMEX converted into Indian rupee. In such cases, the value of ₹1 shall be reflected as the close price in the daily reports.
The differential settlement between ₹1 and the Daily Settlement Price on the balance open positions shall be reflected under the head Mark-to-Market difference in the obligation reports, it said.
MCX will issue a separate circular on modalities of the auction session, along with the implementation date, it said.
The special auction will not have an impact on the current contract specifications of crude oil futures.
Warning investors of volatility in crude prices, MCX told members and their clients to be extra cautious while dealing in crude oil contracts and understand the associated risks before trading in it.
The exchange is already facing brokers’ wrath and law suits for settling the April contract at a negative price.