BSE allows trading commodity derivatives in negative after oil price collapse2 min read . Updated: 28 Apr 2020, 10:33 PM IST
- The Indian exchange’s BOLT Plus trading system has been modified to accept orders and execute trades at negative prices, BSE said
- The daily trade turnover of commodity derivatives is quite thin in BSE, ranging between ₹50-100 crore
BSE Ltd has made changes in its system to allow for trading in commodity derivatives at negative prices, following the collapse of US crude oil futures last week.
The Indian exchange’s BOLT Plus trading system has been modified to accept orders and execute trades at negative prices, BSE said. The daily trade turnover of commodity derivatives is quite thin in BSE, ranging between ₹50-100 crore, and the exchange is not among he leading commodity derivative exchanges in the country.
The May contract of the West Texas Intermediate (WTI) crude had closed at minus $37.63 on 20 April as lockdowns following the covid-19-induced lockdowns crushed demand for the commodity.
BSE, in a circular, said trading members and front-end trading application vendors will be able to place test orders and trade in these contracts at those price levels. This will help members check the readiness of the internal systems and make modifications, if required.
“This is pursuant to recent global developments in the crude oil derivatives markets where trading of derivatives contracts happened at negative prices because of various underlying factors. It is hereby informed to all trading members of commodity derivatives segment that the exchange’s BOLT Plus trading system has been modified to accept orders and execute trades at negative prices," the circular said.
Accordingly, while existing versions of trading system application programming interfaces will also support trading activity at negative price levels, the exchange said the new feature will be enabled in simulation mode and will be available to members/vendors for testing from 4 May.
“All brokers have to make changes in software to enable trading at negative price, post which the change needs to be audited by exchanges and only then can it be accessible for trading. This is a long procedure and will take time especially because of the lockdown," said Kishore Narne, associate director and head of commodities and currencies, Motilal Oswal Financial Services Ltd.
Motilal Oswal is one of the brokerages that has approached Bombay high court against the Multi Commodity Exchange (MCX) settling crude oil contracts at minus ₹2,884 a barrel, following the historic crash in US oil prices. MCX, which has 95% market share in crude oil trading in India, has not yet made any changes in its trading software to allow commodity derivative trading in negative. “We are in the process of making changes in the system and will soon modify the software after testing. However, we won’t be able to share any timeline," said a senior MCX official.