Sebi seeks NCDEX report on fiasco in castorseed trading

Mumbai: Markets regulator Sebi has directed commodity derivatives exchange NCDEX to provide it with a complete fact-finding report on the castorseed issue, which caused four broker-members to default on their mark to market (MTM) obligations to counterparties after castor prices plunged 20% across six sessions through October 3.

“The regulator has asked for a complete fact- finding report from NCDEX on castorseed,” said a person aware of the development.

“The report will contain details of price movements in castor, cause of default by members’ clients or members themselves, and how such a situation could be avoided in future by strengthening risk management .”

The NCDEX MD and CEO, Vijay Kumar, said that the “internal” report was “almost ready” and would be placed before relevant board committees (of NCDEX) before being submitted to the regulator.

Kumar said that normalcy had been restored on the castor counter. To restore order on the counter and match the order book, NCDEX under its bye-laws extinguished the long positions of “defaulting” members by tearing off an equal quantity of short positions of “non-defaulting” members, who were sellers of castor futures.

The shorts received 12% of the settlement prices on September 30 of castor contracts expiring in October -December and a 5% penalty from defaulters as compensation.

NCDEX is the country’s largest agri-derivatives exchange and the second -largest commodity derivatives bourse after MCX.