May 8, 2020 / 2:12 PM / 21 days ago

Russian investors take fight to Moscow Exchange as WTI futures row drags on

MOSCOW (Reuters) - A group of more than 100 people has asked the Russian central bank in its role as regulator and the Moscow Exchange’s major shareholder to investigate whether the bourse deliberately misled investors who bought crude oil futures contracts.

FILE PHOTO: The letters MOEX are pictured at the Moscow Exchange, with the Kremlin and the Four Seasons Hotel seen in the background, in Moscow, Russia, May 26, 2017. REUTERS/Segrei Karpukhin

The moves comes as law firm Milton Legal prepares a legal complaint against the exchange, putting investors’ losses at nearly 1 billion roubles ($13.62 million) after the price of West Texas Intermediate (WTI) crude oil futures collapsed below $0 for the first time on April 20, closing at minus $37.63 a barrel.

Sergei was one of around 750 individual investors holding long open positions on the contract. The next morning he woke up to find himself in 600,000 roubles of debt.

The shock was worse than when he was diagnosed with cancer in February, a moment when he thought he had hit rock bottom.

Unable to continue working as a production engineer following the discovery of a malignant tumor and relying on disability handouts of 10,000 roubles a month, Sergei turned to investing to support his wife and one-year-old son.

“I thought it was some kind of glitch with my broker’s app, going from plus to minus,” he said, asking to withhold his surname to avoid jeopardizing any efforts to recoup his losses.

“When I was given my diagnosis I thought that would be the scariest thing, but it turns out it was just the beginning.”

HELPLESS

The Moscow Exchange, unable to operate with negative prices, halted trading of April futures on Light Sweet Crude Oil blend, pegged to WTI crude futures, with a minimum price of $8.84, leaving investors unable to intervene as the price on the Chicago Mercantile Exchange (CME) plunged.

Investors had assumed the low limit on the contract was $0.01, as had been listed on the CME’s website, said Pavel Maltsev, another investor in the group, who lost around 1.5 million roubles.

Another, who held close to 300 contracts, watched helplessly as his capital turned red.

“Imagine losing 11 million roubles in the space of an hour and not being able to do anything about it,” he said.

A central bank source said the regulator wants to introduce special tests for retail investors before allowing them to trade, so they better understand the risks. “The bourse is just a window here, this is purely a U.S. story,” the source said.

The Moscow Exchange said it acted in accordance with the contracts’ specification and strictly in line with its trading and clearing rules.

It said it was discussing with brokers a way to change trading and risk management setups so that the market could handle negative prices, but that this would take around two months.

The central bank did not immediately respond to a Reuters request for comment.

“I can’t understand why unqualified investors were given such a risky instrument,” said mother-of-three Evgeniya, whose debt to her brokerage totals 670,000 roubles. “I was hysterical. We were frozen out... we couldn’t manage our risk.”

Additional reporting by Elena Fabrichnaya; Editing by Katya Golubkova, Kirsten Donovan

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