India Brokers Seek Court Protection From Costs of Negative Oil
Oil and gas rigs are seen offshore from Uran, Maharashtra. (Photographer: Dhiraj Singh/Bloomberg)

India Brokers Seek Court Protection From Costs of Negative Oil

(Bloomberg) -- At least three Indian brokerages have petitioned the courts to challenge the settlement of crude oil contracts at negative prices.

Motilal Oswal Financial Services Ltd. and PCS Securities Ltd. are appealing to the Bombay High Court, which will hear on April 27 their case against the decision by Multi Commodity Exchange of India Ltd. Religare Enterprises Ltd. has turned to the Delhi High Court, said Ravichandra Hegde, senior partner at Parinam Law Associates and the lawyer representing the brokerages.

Losses amounted to 4.35 billion rupees ($57 million) on April 20, Hegde said, when crude’s unprecedented crash into negative prices caught investors off guard across Asia. If the legal petition is unsuccessful, the securities firms will have to impose costs on their clients, and if they refuse or fail to pay up it can become an obligation on the brokerages themselves.

“It is shocking that a cash-settled trade in crude can be settled in a negative rate when there is no mechanism built in Indian stock exchanges to trade at negative rates,” Motilal Oswal said in a statement. “We are only trying to help the interest of investors who have paid the full value of the contract and still have to pay 300% more because of negative closing in international markets, which is delivery settled.”

MCX decided to settle the expired futures contracts at minus 2,884 rupees a barrel, based on the NYMEX WTI front-month contract settlement price. Its shares plunged almost 15% over the next two days, before recovering 7.4% in Mumbai on Thursday. An email to MCX wasn’t immediately answered.

Hegde said the brokerages moved the court after the exchange and the market regulator Securities and Exchange Board of India didn’t respond to requests to allow settlement at 1 rupee a barrel. Shorter trading hours imposed under India’s lockdown means traders frustratingly couldn’t cut their losses, he said.

“Even a person seeing on the screen that the price is falling could not have done anything,” Hegde said. “All I’m saying is be practical. Don’t kill us.”

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