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Additional Margins for Crude Oil Contracts


Posted on 14-May-2020 Comments  0

Dear Client,

 

In view of the increased volatility in Crude Oil contracts, MCXCCL has put in place the below risk management measures to cover fluctuations in Crude Oil prices.

 

A. Initial Margins:  An initial margin of 100% shall be levied for all existing and yet to be launched Crude Oil contracts. Minimum Initial margin of Rs. 95,000/- per lot shall be levied.

 

B. Additional Margins: An additional margin of Rs.1,00,000/- per lot shall be levied on near month Crude Oil Futures contract and on short side of near month Crude Oil Options contract.

 

Further, an additional margin of Rs.50,000/- per lot shall also be levied on all other Crude Oil Futures contracts and on short side of Crude Oil Options contracts (including yet to be launched Crude Oil contracts).


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:


1. If the price of the crude oil falls between 50% to 75%, (previous close compared to current price of the contract at MCX / NYMEX) then an additional margin of 50% of the MTM would be levied.


2. If the price of the crude oil falls between 75% to 90%, (previous close compared to current price of the contract at MCX / NYMEX) then an additional margin of 100% of the MTM would be levied.


3. If the price of the crude oil falls beyond 90%, (previous close compared to current price of the contract at MCX / NYMEX) then an additional margin of 125% of the MTM would be levied.

 

Further, MCXCCL reserves the right to increase the additional margins intra-day based on the price movement in the market.

Illustration on the levy of additional margins is provided as Annexure 1 to this circular.

 

C. Spread Margin benefit:  Spread margin benefit on Initial Margins shall not be provided in Crude Oil contracts.

 

D. Options VSR:  The Volatility Scan Range (VSR) shall be increased from 5% to 20% for all existing and yet to be launched Crude Oil Options contracts.

 

E. Extreme loss margin:  Extreme Loss margin of 1.25% shall continue to be levied on all Crude Oil Futures contracts and on short positions of all Options Contracts.

 

The provisions of this circular is applicable from beginning of day on April 30, 2020.

 

In View of the above circular we have tried to incorporate some on the increased margin requirements in our trading software by increasing the additional margin to 50% of contract value. So in essence the margins on crude oil would be 150% of contract value till the above MCX circular is in force.

 

Please note that all facets of the MCX circular are not possible for us to incorporate at such short notice in the trading system as it requires huge changes in the risk management framework. Our revised margins in trading platform is in effect from 14th May 2020.

 

We advice our clients trading in Crude oil to take abundant caution in view of the increased volatility and margins and advice to keep extra margins as cushion over the above the margins exchange has imposed to prevent any margin shortfall penalty from exchange for carry forward trades.

 

Stay Safe , Trade Online,

 

Tradeplus Team 

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