The Multi Commodity Exchange of India Limited (MCX) on January 10, 2025, issued a circular regarding the Alternate Risk Management Framework Applicable in case of Near Zero and Negative Prices.
Commodities/Indices in which the Alternate Risk Management Framework (ARMF) in case of Near Zero and Negative Prices will be applicable:
• Crude Oil
• Natural Gas
Conditions in which the ARMF will be triggered:
The shift to the ARMF shall be conditional, based on triggers indicating the likelihood of near zero/negative prices. Some of the conditions/ circumstances which are indicative in nature and may warrant the activation of the ARMF are as under: -
• There is a fall in the commodity/Index prices by more than 50% within 20 trading days, while comparing the intra-day highest and lowest prices.
• In case of internationally referenced contracts, the international exchange/clearing corporation having the benchmark contract decides to introduce such measures for negative prices.
• Options contracts having strike price values of near zero/negative are introduced by the stock exchange for trading.
• Any other conditions which might indicate the likelihood of negative prices.
Threshold price for identified commodities/Indices for the month of February 2025 below which the ARMF will be triggered.
Below is the threshold price at which ARMF will be triggered:
• Crude Oil - 1300.00
• Crude Oil Mini - 1300.00
• Natural Gas - 80.00
• Natural Gas Mini - 80.00
Additional margins based on price movement:
Based on the price movement, further additional margin over and above the aforesaid margin shall be levied. The criteria for the same is as under:
• If the price of the commodity/Index falls between 50% to 75%, (previous close compared to current price of the contract at MCX / International referenced market) then an additional margin of 50% of the MTM would be levied.
• If the price of the commodity/Index falls between 75% to 90%, (previous close compared to current price of the contract at MCX / International referenced market) then an additional margin of 100% of the MTM would be levied.
• If the price of the commodity/Index falls beyond 90%, (previous close compared to current price of the contract at MCX / International referenced market) then an additional margin of 125% of the MTM would be levied.
The provisions of this circular shall be applicable for February 2025.
[MCX Circular No. MCX/MCXCCL/019/2025]
