MCX strengthens risk criteria: raises additional margins for crude oil contracts

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Mumbai Ta. Wednesday, April 29, 2020

Multi Commodity Exchange Clearing Corporation Limited (MCXCCL) has announced an increase in its additional risk management measures to cover the fluctuations in crude oil prices.

Additional criteria have been changed by MCX following the BSE's decision to allow trading in commodity derivatives at negative prices yesterday. The BSE on Tuesday changed its Bolt Plus trading system to allow orders to be traded at negative prices. Of course, MCX, which has a 5 per cent market share in crude oil trading in India, has not yet made any changes to the trading software to allow it to trade in commodity derivatives at negative prices. However the exchange said it is in the process of making the necessary changes to the system and will update the software shortly after testing.

MCX, meanwhile, has increased its additional margins on crude oil futures based on market fluctuations in its new benchmarks. As per all existing and not yet started crude oil contracts, 100 per cent initial margin will be charged, while the minimum initial margin will be Rs 5,000 per lot.

An additional margin of Rs 1 lakh per lot will be levied on near-month crude oil futures contracts and short-term near-month crude oil options contracts, the circular said. If the price of crude oil falls by 20 to 5 per cent compared to the current price of contracts on the MCX or Nymex compared to the previous day, an additional margin of 20 per cent of the mark-to-market loss will be taken. Similarly, if the price of crude oil falls by 5 to 20 per cent, an additional margin of 100 per cent will be taken and if the price falls below 50 per cent, an additional margin of 15 per cent of the MTM loss will be taken.

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