Dear Customers,

I am sure you all agree that we are living in times where unprecedented things are happening to us. With every passing day list of these things are just growing. Humanity facing its worst pandemic in last 100 years, Economic activity across globe practically standstill, Recession staring at our face and latest on this list is Crude Oil(A natural resource which is precious and limited) trading in Negative. With Supply being far more than demand for oil and oil products prices of Crude on NYMEX and subsequently on MCX in India was falling for last few weeks. But the real tragedy hit us on April 20th (Expiry for April Contracts on MCX) when because of storage fears and expiry of April Contracts on NYMEX traders squared off Long Positions of Crude and prices went into negative of -37$ Per barrel.All this happened on the night of 20th April when Indian commodity markets had already closed for the day. The impact of the same was that instead of Contract getting expired at ₹965 per Barrel (Closing price of MCX) exchanges did it at-₹2884, a further loss of ₹3849 i.e. ₹3,84 Lacs on each lot of Crude.

In last 3 days i have been asked a lot of questions by various people.

Customers who are impacted: What is our fault and why are we being penalized?

Customers in General: Is our Broker safe?

Investors and Bankers: What is the impact on 5paisa Capital as a company?

I would like to address all these questions in my way

My View on this Entire fiasco

I personally feel that exchange’s decision first to settle the contract at ₹1 and then at -₹2884 both are wrong. With just 1 decision Clients and brokers faced a direct loss of ₹423 Crs. (11000 Contracts were open on exipry). Though technically Crude oil prices on MCX are a mere reflection of price of WTI Crude on NYMEX (Dollar rate adjusted) and like every month it has to be settled at the closing price on NYMEX only. But there are 2 issues which were distinct this time.

First is that commodity markets in India were closed. This was done by exchanges themselves because of inconvenience expressed by brokers to run evening session in Lockdown. It means that Traders and brokers did not have any opportunity to respond to falling prices. If markets are open then either traders would have squared off or Risk Management of Brokers would have triggered the square off orders. None of this happened.

Second is that Indian markets are not equipped to trade in Sub-Zero price. So even if markets were open after sometime prices would have frozen at ₹1 because it can’t trade in negative in commodity markets.

So I feel that as Crude Oil as a contract is Cash settled, it should have been closed at either ₹965 i.e.Closing price at 5 p.m. In worst case scenario, ₹1 i.e. lowest price a contract can go in Indian Markets.

Impact of the meltdown on 5Paisa as a Broker

In this entire meltdown we as a broker are fairly insulated. Despite having approximately 1% Market share in Turnover on MCX, We only had 36 Lots open as on April 20th post market closing. At settlement price of ₹1 we were 100% covered and had no additional amount receivable from our clients. It means that our client had funds more than 55% -60% margin required for Crude Oil Contract. But at settlement price of -₹2884 we have exposure of approximately ₹50 Lacs only which is a very small amount compared to our Networth and Revenues. Though we are in touch with our customers and requesting them to honor their payment but we have honored our commitment to exchange and even now our commodities segment is operational like before with same margins and exposures we used to provide. I would also like to mention that our other segments have no impact of this. We continue to provide all our services like before including intraday exposures, Margin Funding, etc. I would have liked to share our Financial details also but as we are a listed company and have not declared our results till now, I would not able to divulge those details. I Promise that I will communicate with all of you again post our Quarterly and Annual results are declared.

Lastly,I would like to say that though we as a broker are not much impacted by crude Meltdown but I still feel that regulators should consider reversing their decision because it has unnecessarily impacted Broking industry as a whole and together having an exposure or probable loss of ₹432Crs.