MCX, which has 95% market share of crude oil trading in India, has not yet made any changes in its trading software to allow commodity derivatives to trade at negative prices
The Multi Commodity Exchange Clearing Corporation Limited (MCXCCL) on Wednesday announced additional risk management measures, effective 30 April, to cover fluctuations in crude oil prices.
The change in additional measures by the Multi Commodity Exchange of India (MCX) follows BSE allowing trading in commodity derivatives at negative prices. BSE on Tuesday said that its BOLT Plus trading system has been modified to accept orders and execute trades at negative prices.
MCX, which has 95% market share of crude oil trading in India, has not yet made any changes in its trading software to allow commodity derivatives to trade at negative prices. However, it said that it is in the process of making changes in the system and will soon modify the software after testing.
The new measures by MCX include increases in additional margins on crude oil futures contracts based on the price movement in the market. An initial margin of 100% will be levied for all existing and yet to be launched crude oil contracts while a minimum initial margin of ₹95,000 per lot will be levied.
"An additional margin of ₹100,000 per lot shall be levied on near month crude oil futures contracts and on short side of near month crude oil options contracts. Further, an additional margin of ₹50,000 per lot shall also be levied on all other crude oil futures contracts and on short side of crude oil options contracts," the circular said.
If the price of crude oil falls between 50-75%, (previous close compared to current price of the contract on MCX/NYMEX) then an additional margin of 50% of the mark to market loss would be levied. Similarly, if crude oil price falls between 75-90% then an additional margin of 100% and if the price falls beyond 90% then an additional margin of 125% of the MTM loss would be levied.
"Further, MCXCCL reserves the right to increase the additional margins intraday based on the price movement in the market," the circular said.
No spread margin benefit on initial margins will be provided in crude oil contracts. The volatility scan range (VSR) is increased from 5% to 20% for all existing and yet to be launched crude oil options contracts.