Page 8 - FSUOGM Week 17

FSUOGM COMMENTARY FSUOGM
Investors sue Moscow exchange
after WTI swings negative
The Moscow exchange’s software does not function at negative prices, a law firm has said
RUSSIA
MORE than 150 investors are preparing to launch a class action lawsuit against the Moscow Exchange (MOEX) worth RUB1bn ($13mn), after West Texas Intermediate (WTI) futures closed at a negative price earlier that week, law firm Milton Legal told TASS on April 24.
The WTI contract swung into the negative for the first time in history on April 20, closing at -$37.63 per barrel, amid unprecedented storage fears.
“The Moscow Exchange and brokers pro- viding access to the exchange were completely unprepared for this and trading was suspended at $8.84 per barrel,” Milton Legal told the Russian news agency. “Bidders were completely unable to influence the deal, close the position or set a stop loss.”
The exchange announced after the trading session that all contracts would be closed as per the price at the New York Mercantile Exchange (NYMEX), of -$37.63 per barrel, Milton Legal explained.
Traders subsequently booked losses of $46.47 per barrel, given that trading was halted at $8.84. The Moscow Exchange’s brokerage software does not function at negative prices, Milton Legal said. What is more, the platform and bro- kers did not warn traders in sufficient time that
the contract would slide below zero.
The size of the claims may be revised as more
plaintiffs sign up, the law firm said.
Fearing a repeat of the incident, brokers
temporarily restricted clients from trading in WTI futures on April 24, projecting that the June contract would also slide below zero. Brokers said they had taken this step to protect the inter- ests of customers. The contract was fluctuating at between $10 and $14 per barrel on April 28.
The MOEX plans to develop a mechanism in the coming months to enable derivatives to trade at negative values, Vedomosti reported on April 24.
Urals volatility
Unlike WTI or Brent, Russia’s own flagship Urals grade does not trade in futures, despite successive efforts by the Russian government to launch the contract. Moscow’s last attempt was in November 2016, when the St Petersburg International Mercantile Exchange (SPIMEX) attempted to launch the contracts. However, trading languished and was eventually halted because of a lack of interest.
Traders raised the issue of regulatory risks, especially regarding dispute settlement. The market also lacked enough liquidity. The recent debacle with WTI futures also raises concerns that Russian exchanges may not be capable of handling futures contracts in times of extreme volatility.
On the physical market, Urals has shed signif- icant value since early March, in line with Brent and WTI. Its price sank to $8.48 per barrel at Mediterranean ports on April 21, the day WTI
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w w w . N E W S B A S E . c o m Week 17 29•April•2020