(Reuters) - Chinese investors who traded Bank of China's (BoC) crude oil futures trading product are crying foul over the bank's decision to settle the trades at historic negative prices, claiming the bank should have done more to protect their interests.
U.S. WTI futures fell below $0 per barrel on Monday for the first time, ending at a stunning minus $37.63 per barrel as traders paid to get rid of oil.
Following the crash, BoC (SS:601988) (HK:3988) stopped allowing new positions in the product, also known as crude oil "bao", or treasure, on Wednesday.
It later said its main investors "are going to settle their trades based on the exchange prices" and that the bank had "completed the May contract expiry process according to earlier agreement."
Other banks followed suit in halting new positions for similar products, including China Construction Bank Corp (SS:601939) and China's Bank of Communications (HK:3328)
Stephanie Peng, a second-year university student in Hunan, told Reuters she invested over 70,000 yuan (8,010.39 pounds)in BoC's crude oil "bao" in early April, but has lost it all, including a cash deposit of about 7,000 yuan.
BoC told her they settled the contract at a negative value, and that she recorded a total loss of 183,271.20 yuan from the investment. BoC transferred 8,000 yuan from her bank account on Thursday to buffer the loss.
"That's all my scholarship money and savings," Peng said. "I haven't told my family yet, and I hope to issue complaints to the China Banking and Insurance Regulatory Commission to protect my rights," she said.
Peng said BoC sent her a text message on April 20 to inform her that the contract was due to expire on April 21 and to place transactions if needed, but didn't inform her of any market risks.
"I thought it was a safe wealth management product, some of my classmates bought it, so I bought it too," Peng said, citing online marketing material from BoC that positioned the "bao" as suitable for amateur investors.
Other BoC investors vented their frustration in chat groups on China's QQ and WeChat social media platforms, claiming the bank should have rolled over positions or settled the contracts earlier.
BoC's "bao" is sold to individual customers and is linked to domestic and foreign crude oil futures contracts, including West Texas Intermediate (WTI) (CLc1) and Brent (LCOc1).
Investors can choose when to roll positions themselves, or let the bank do so. If investors leave the rollovers to BoC, the contract positions are rolled over or settled on the day the contract expires, according to a BoC notice on its website dated April 22.
Some investors that Reuters spoke to said BoC had not issued any prior warnings, or flagged that prices could turn negative.
Zhang Qi, an analyst with Haitong Securities, said BoC's information and risk disclosure was inadequate, and that it failed to conduct the eligibility management of investors.
"I think both BoC and CME have a responsibility in this," said Zhang, referring to CME Group (NASDAQ:CME) which owns the New York Mercantile Exchange where WTI futures trade.
"CME changed the trading rules and allowed crude oil futures to trade in negative territory at first, and then the bank failed to alarm the investors of related risks."
CME, which this month updated its systems to be able to process negative prices, told Reuters on Thursday that its markets worked as designed.
"Our futures prices reflect fundamentals in the physical crude oil market driven by the unprecedented global impacts of the coronavirus, including decreased demand for crude, global oversupply, and high levels of U.S. storage utilization," the exchange said.
"After advance notice to our regulator and the marketplace in early April, CME Group accommodated negative futures prices on WTI on April 20 so that clients could manage their risk amid dramatic price moves, while also ensuring the convergence of futures and cash prices."
When asked for comment, BoC referred Reuters to its Wednesday statement and said it had no other response beyond that.
Xie, another investor, told Reuters he invested 51,734 yuan in BoC's crude oil bao but all he sees now is a zero when he opens up his BoC investment app.
"I did not receive a warning that the price could go negative," said Xie, who is in his late 20s.
"The impact (on me) is huge, I dare not tell my family. I haven't slept for 3 days," he added. "From now on, I'm going to work hard, it's not worth playing (with such products)."