PALAK SHAH The crude oil fiasco at the MCX is giving renewed hopes to both NSE and BSE. Both the exchanges are organising webinars to attract oil traders on to their respective platforms that have not seen much churn since launch last year.
April month crude oil futures on the MCX was settled at negative pricing, resulting in traders losing a whopping ₹442 crore. This has upset a number of traders on the MCX.
The trading software at the MCX does not allow negative bidding but the exchange on its own set (minus) ₹2,884 as settlement price for its contracts after the markets closed at ₹965 per barrel on April 20. MCX said it took WTI crude oil as its benchmark as is the general norm and accordingly took the settlement price at Nymex, which closed at (minus) $37 on that day. The aggrieved brokers dragged the MCX to court, but failed to get an order in their favour.
The NSE and the BSE both trade in Brent crude, which is a Saudi benchmark price contract of oil. India mainly buys its crude oil supply based on Brent pricing, which could give further clarity to hedgers, the exchanges intend to tell traders. While the BSE will be holding a webinar on Monday to explain the issues at hand, the NSE will organise one on Tuesday. BSE has already said that it has enabled negative pricing for crude oil.
Brent crude is costlier than WTI crude. Also, there is a huge difference in the spreads of the two benchmarks.
WTI crude is the price index of crude oil in the US, while Brent has a wider appeal.
Trading in crude oil derivatives, had so far, been attractive in India, thanks to the low margin requirement as low as ₹10,000 for one lot. Compared to that, margins for Nifty and Bank Nifty lots would cost up to 10 times more. This had resulted in even equity derivative traders moving oil. However, after April 20 and due to the high volatility margin in crude oil, margin for trading in a single lot comprising 100 barrels of oil has been increased to ₹1.95 lakh.