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Negative stock prices, bonds, commodity futures is nonsense only from the point of view of common sense. But in fact, in addition to technical and regulatory restrictions, there are no mechanisms that are in crisis prevent the withdrawal price minus. The absence of price caps sets the stage for a very dangerous situation when the market can become completely unmanageable. The more that a significant part of the operations on the stock exchange is done by robots.

20 APR went down in history as the day when oil became cheaper than the barrel in which it is placed. A popular explanation for this phenomenon is that traders are suddenly frightened overflow storage (it can cause penalties for non-delivery, spills and other unpleasant consequences), and I panicked. However, understanding the incident came only a few days later. The event caused such a strong resonance that players think seriously:

there are Negative rates, spreads, that is, in principle, in the financial world of negative rates is not news. And trading systems are able to process applications, take risks, carry out clearing. But in the oil market and other commodities precedents of care rates below zero was not. The players were not ready, which only increased the panic.

the Best comparison of current situation – trade emissions or other waste. This market pays is the one who delivers. For the seller of the goods (for example, waste for recycling) prices are negative, and the buyer receiving the goods does not pay, but rather gets money for it. In terms of reducing the free capacity of the prices for them began to grow. But it is not necessary to exaggerate. The growth of prices for “barrels” are nothing compared to falling oil prices.

Earlier, it happened that oil and oil products were traded at zero or even negative price. A little over a month ago, the United States quotes on heavy oil was negative. But the reason for this can be not only in the overflow storage, but in the features pricing, in which certain grades and petroleum products are bound to the quotations of marker varieties. And the sharp falls to near-zero values, previously considered improbable, produce similar results. Take, for example, fuel oil is a residual product of oil refining. When demand for gasoline fell and storage capacity in place there is no recycling, oil had to pay for transport cost. In Russia in 2008-2009, thanks to energy companies that use heavy oil as fuel, were able to successfully survive the winter season.

I believe that the trigger was the decision of the new York stock exchange that trading and clearing negative prices are allowed. This decision almost nobody noticed and not taken seriously. As it turned out, in vain. But it is bad. It seems that no one except exchanges��, did not notice and other important circumstances.

the contract for the Light Sweet oil is known to supply (provides for the supply of oil storage in Cushing in may). In April, the world oil consumption dramatically by 15-20%, fell because of the pandemic coronavirus. That is, the volume of purchases has decreased, while shipments remain in the previous volumes. Stocks in Cushing at this time greatly accumulated, hence the fear that power will be filled. However, this is not enough, the price fell below zero. But the market supply contracts that turned out to be a lot of players who are not going to go out on delivery. It’s basically the funds of the commodity market and short-term speculators. They are usually at the last moment without any problems rolledout its position in contract with expiration (execution of obligations under the contract) in the next month. But not this time. The imbalance of the market in favor of sellers has played a fatal role. It turned out that close positions in the near future to 10 million barrels without a sharp drop in prices is simply impossible: there are no buyers. Falling prices caused margin calls other participants and exacerbated the collapse. And expiration is inexorably approaching.

in Other words, the movement is already ticked, and the exchange, prudently allowing negative prices for the week before the event, took the fuse with this mechanism. And the dramatic denouement was inevitable.

the Truth is that the fundamental factors do not determine all the movements on the stock exchange. No factors, fully justify the price of a barrel to minus $ 37 per barrel, the same as the price of $ 150, which oil was reached in 2008. Fundamental factors determine long-term trends and not the price at a specific point in time.

the Unprecedented drop in prices lasted only a few hours. Other contracts it is almost not affected. Inventory statistics shows that place in the vaults of the remains. Yes, it has decreased, the price of storage has jumped, but it did not happen in one day. But prices have fallen by 800% in a matter of hours.

the Collapse of quotations, so powerful that they even drifted into negative territory, best explained by exchange mechanisms, and they, in turn, explains nothing. In other words, the fall in oil prices below zero due to a combination of different circumstances, including a change in stock exchange rules, the expiry of the contract, market conditions (very few real buyers and big players with no intention to go to delivery), margin calls and panic. The situation in the economy became only a backdrop to this sad picture.

Fall into negative territory and touched on only one contract – for the supply of oil in the United States. It was reported that the price of Russian Urals crude also briefly dipped into negative territory. But it’s not. Quotes varieties indicative, they are only a guide for traders and are based on the value of other varieties, so some sources broadcast the wrong information. Really night, no one Russian oil at a negative price is not traded. Just the media got ahold of this information and gave it in fact, accompanied by appropriate comments.

Investors hope that the economy will recover in the coming weeks. Short-term fall in oil prices is not critical for the budget and exporters. Contracts of Brent crude for delivery in summer months traded in the range of from 20 to 30 dollars per barrel. At this price the equilibrium exchange rate of the ruble lies in the range of 80-100 per dollar. In addition, not only oil determines the course. The Bank of Russia increased sales of the currency in the market, it helps to smooth out fluctuations in individual days. Trading turnover on the stock exchange as a whole is back to pre-crisis values.

it is Unlikely that negative rates would bankrupt manufacturers. Their traders usually do not wait until the last day when the contract expires, and sell in advance. In General, producers are always in the market short position, Hejira risks of falling prices, especially in this situation as it is now. Anticipating a further drop in demand, they could sell even more, knowing that they may not even have at that price to put. This situation is driving speculators into a corner. Suffered by those who did not plan to go to supply and not managed to jump out of long positions, mainly various funds and private investors. On the Moscow stock exchange about 780 private investors held long positions in the amount of 300 thousand barrels. Their losses exceeded $ 15 million. You can argue about whether rights exchange, which did not accept emergency measures on the evening of the 20th of failing to start bidding for the strap, and opened it this morning, but we can not change anything.

Negative prices are possible only because the exchange made them. If the minimum price were limited to one penny, the players may not have been able to close long positions until expiry, but the price for this would remain in positive territory.

the Players took steps to minimize the likelihood of recurrence of the situation. In particular, brokers have limited some investors trade in commodity contracts. Funds, particularly the USO, change investigatii to have the ability to reduce the risk in the middle contract, time to Rollerball position before expiry no significant losses. Producers reduce output for the next two months to smooth out the imbalance of supply and demand. The economy will recover and oil demand will increase by 10 million barrels a day after the lifting of quarantine restrictions and the resumption of flights in the same volume. But it’s not eliminates the risk of a repeat of April 20 completely.

If you allow negative prices on other contracts, such as stock, the punters there is also the additional risk that they have not yet learned to control.

be aware that a significant proportion of turnover generated robotic players. They don’t care about fundamental questions, they simply trade based on the implemented algorithms. Robots in the past been the cause of price instability in the markets. And people, if you panic, can disperse the market. To combat price instability using various constraints. And when one of the most important mechanisms of exchange restrictions turned off, the incident was not long in coming.

the London stock exchange ICE followed by CME (which includes the new York Mercantile exchange) allowed the trading and clearing of negative prices. So investors, especially those who trade on other platforms should be on the lookout. The Moscow exchange also reported that in the coming months will finalize their systems and processes for trading derivatives with negative price values for the underlying asset.

the Infrastructure of brokers and platforms are not fully ready for innovation. In the worst situation of a natural person. As a rule, they suffer from the stock shocks the most.