Sebi seeks explanation from NCDEX on castor seed matter

Capital markets regulator Sebi has sought explanation from the National Commodities and Derivatives Exchange (NCDEX) in the matter of castor seed contracts, whose futures trading was suspended with immediate effect on Wednesday evening.

Sebi has asked the NCDEX to explain what were the factors that led to suspension of trading and also the measures that were being taken by the exchange while positions were built up in that commodity, sources said.

The Securities and Exchange Board of India has also sought details about the risk management measures in place at the commodity exchange.

Sebi has been keeping a tight vigil on the commodities derivatives market ever since it began regulating it pursuant to the merger of erstwhile commodity regulator FMC with it. When contacted, an NCDEX spokesperson said the exchange would reply to Sebi at the earliest and the regulator was also informed about the decision to suspend trading.

The decision was taken after consulting the board, after the exchange apparently found the open interest positions for the next month contracts to be high and the prices were low. In a circular, the exchange had said on Wednesday that it was suspending futures trading in all running castor seed contracts to “safeguard market integrity and maintain equilibrium”.

“We have suspended futures trading in all running castor seed contracts at close of business today under the provisions of the bye laws and regulations. The outstanding positions will be settled at the daily settlement price as at the end of day 27 January,” NCDEX had said after the decision.

NCDEX said the contract has been under surveillance for some time and the price discovery process was getting affected, making it necessary to take the necessary steps.

With the new arrival season, any disturbance in efficient price discovery in these contracts could have had adverse impact on orderly functioning of the market, NCDEX said. This also could have impacted thousands of farmers, it said, adding that some of the members were expressing difficulty in meeting their mark-to-market (MTM) margin obligations.
Source : Livemint