The sharp decline in crude oil prices
triggered mark-to-market (MTM) margin calls, but the exchange increased margins in sync with the price decline to cover risk.
“The exchange covered the price volatility risk adequately with no default occurring during the crude oil price decline,” a senior MCX
Brokers’ sources, however, said that the sharp decline in crude oil prices
triggered margins calls on MCX.
Many brokers raised their margins to cover price volatility. However, the price decline, also gave trading clients some room to increase exposure to some extent.
Early Monday, overall margins in crude oil were hovering at 19.57 per cent, and steadily went up to 59.12 per cent. Total open interest in crude oil declined to 22,623 lots on Monday, from 29,267 lots on Friday.
With crude oil prices recovering marginally from the day’s lows, the exchange reduced margins accordingly to adjust price volatility. At the end of morning session, overall margins in crude oil were hovering at 42.99 per cent.
“Crude oil prices extended the 10 per cent decline of the last week on Monday, with a fresh fall of 31 per cent in early trade. Both, the exchange and brokers were prompt in increasing margins to cover the risk of crude volatility adequately,” said Naveen Mathur, Director (Commodities and Currencies), Anand Rathi Share and Stock Brokers.
In the international markets too, Brent prices declined by 30 per cent to trade at $31 a barrel early Monday, following Russia’s decision not to cut its production to arrest further fall. In response, the Saudi Arabia-led Organisation of Petroleum
Exporting Countries (Opec), the premier organisation monitoring crude oil production and supply, decided to get into a price war with Russia. This was a key reason for the sharp decline in crude oil.