Russian Central Bank Backs Moscow Exchange’s Handling of Negative Oil Futures

Trading was suspended in April futures on Light Sweet Crude Oil blend, pegged to WTI crude futures, with a minimum price of $8.84.

OILMONSTER.COM- Russia’s central bank said on Thursday that the Moscow stock exchange did not violate regulations by suspending trading of crude oil futures last month, but investors nursing losses were free to pursue compensation through the courts.

A group of more than 100 investors had asked the central bank in its role as regulator - and the Moscow Exchange’s major shareholder - to investigate whether the bourse broke rules when it abruptly halted trading on certain instruments on April 20, as the price of West Texas Intermediate (WTI) oil futures spiralled below $0.

Trading was suspended in April futures on Light Sweet Crude Oil blend, pegged to WTI crude futures, with a minimum price of $8.84.

Investors had argued that the decision to halt trading as the price of WTI futures plunged, closing at minus $37.63 a barrel, had deprived them of the opportunity to limit their exposure.

Law firm Milton Legal began preparing a legal complaint against the exchange for individual investors’ brokerages last month, putting losses at nearly 1 billion roubles ($14.14 million).

The central bank said its analysis of the situation and internal Moscow Exchange (MOEX) documents showed no evidence that the exchange had acted improperly.

“The request for compensation to professional participants in the financial market can be determined by taking cases to court,” the central bank said.

MOEX’s reason at the time for halting trade was that as brokerage and clearing systems could not work with negative prices, it preemptively halted trading to avoid any technical issues. It later said it acted in accordance with the contracts’ specification and strictly in line with its trading and clearing rules.

The central bank said it is preparing recommendations for stock exchanges and traders aimed at minimising future risks when trading derivatives.

Pavel Maltsev, an investor who lost around 1.5 million roubles, said he disagreed with the central bank’s reasoning and would pursue the matter in court.

The National Association of Stock Market Participants (NAUFOR) wrote to the Moscow Exchange earlier this month seeking to establish a means of compensating traders for losses incurred during negative trading - those below $0.01. However, MOEX’s council voted down the proposal by 13 votes to 10 at the bourse’s council meeting, a MOEX representative said.

A source familiar with the matter told Reuters that both sides of the conflict, brokers and the exchange, are discussing an option to equally share the losses incurred during negative trading. 

Courtesy: www.reuters.com