MCX prepares for negative trading in all commodities after crude oil row

After crude oil last month, market fears natural gas may also see negative price trading: exchange announces special auction window for exit opportunity

Weeks after it triggered a controversy by settling the April crude oil contract in negative territory, the Multi Commodity Exchange of India (MCX) has decided to open a window for auction, in case the trading price of any commodity turns negative. This auction window is for those who want to exit before settlement. 

The MCX’s software, so far, doesn't allow trade below Rs 1 in any commodity. Following the controversy and the footsteps of the New York Mercantile Exchange (Nymex), the MCX is working towards enabling its software for negative price trading.  The MCX crude oil contract is a mirror of the Nymex contract. 

 

 

According to the MCX’s latest circular, “On any trading day, if the price of crude oil contract freezes at the lowest price (i.e. Rs 1) in the trading system and remains at the same level continuously in the final 15 minutes of trading (currently 11.15 pm to 11.30 pm) and the corresponding international reference contract is trading at a negative price, the exchange will provide an additional facility by conducting a separate auction session for the said future contract to facilitate market participants to close out or square off their open positions. This facility will not be available on the expiry day of the crude oil futures contract.”

The exchange further said: “This facility will also be available for all other commodities, subject to fulfilment of conditions.”

This expands the coverage horizon of the auction window until the exchange’s software enabled for trading at a negative price. 

The move comes as the markets discuss the possibility of the natural gas contract trading in negative territory. Last week, CME Group has said that Nymex is putting in measures to support negative prices and strikes on certain natural gas contracts from May 18.

Following the controversy over settling crude oil contract in negative territory, many players having large volumes in crude oil contract have stopped trading in crude oil or increased margins multi-fold for clients. As a result, trade and positions have shifted to natural gas contract.