NCDEX might suspend members who violated trade norms

The National Commodity & Derivatives Exchange (NCDEX) might suspend registration of clients involved in manipulation of castor seed prices on its platform. Around half-a-dozen clients were involved in that.

The exchange's initial findings into castor seed price manipulation started four days ago suggest some irregularities and suspended trading in the commodity with approval from its board. Traders have been asked to withdraw their deposits of goods from the exchange-registered warehouses. 

Trade sources feared involvement of some large traders and some unknown traders had started taking ‘short position’ without having adequate quantity underlying stock in warehouses.

“Especially in the past few days, it has been observed that the castor contract wasn’t functioning the way it should be. It had reached the extreme where we felt there is significant risk to market functioning and market integrity would be compromised. It also led to the conclusion that the transparent price discovery process was getting affected,” said an exchange official.

The official added the exchange had also started investigation in this regard. If found guilty, NCDEX would take harsh measures and recommend the regulator, Securities and Exchange Board of India, with stringent actions against the culprit including suspension of membership of such clients or members, he noted.

Apprehensions are that a large corporate house has taken huge position at a price significantly higher than the prevailing price of castor seed. Therefore, the corporate house wanted castor seed price to go up to recover its losses. But, a couple of other traders in similar fields played spoilsport by placing “short positions” orders.

“This does not give a perfect price discovery in the futures market, which NCDEX is meant for. So, we have decided to not let the trade use NCDEX platform for the corporate war elsewhere,” said the official.