Castor futures likely to be relaunched

Castor seeds futures, a leader in the segment and suspended by the National Commodity and Derivatives Exchange (NCDEX), are likely to be relaunched again.
 
The market regulator, the Securities and Exchange Board of India (Sebi), is considering a proposal on this and is likely to announce its decision soon, according to sources.
 
Even the Multi Commodity Exchange (MCX), a leader in metals and energy commodities, has also applied for launching castor seed futures and is ready with contracts once Sebi approves it.
 

Castor seed futures were suspended in January last year by the NCDEX because some market players manipulated and rigged up prices and later when prices crashed they were not in a position to pay mark-to-market margins, which could have led to systemic risks. The NCDEX suspended the futures with board approval.

 
Recently the exchange applied to the regulator for relaunch and the exchange’s board wrote to Sebi, saying the exchange’s risk management architecture had been beefed up and the surveillance process strengthened. It has also set up a mechanism for keeping a tab on developments in physical markets, which impact futures.
 
Samir Shah, managing director and CEO, NCDEX, said: “The castor incident indicated that the commodity markets were still in their early phase of development where market surveillance, risk management and physical spot markets and physical infrastructure needed more strengthening. In the past six months, following the lessons of the castor incident, we beefed up our surveillance and market intelligence teams, reviewed processes and took a slew of measures to make the markets safer. We also strengthened our risk management systems, making them robust and world-class. With Sebi as our new regulator, we are very confident that these systems and processes will strengthen significantly and we look forward to the relaunch of the castor contact.”

 
Following the castor seed futures suspension, Sebi barred 19 entities from the capital market. These include one of the largest edible oil refiners.
 
Sebi on its part has compensated the investors who faced losses by distributing margin and other funds, which it collected from the debarred entities, including brokers.
 
Following Sebi’s advice, a forensic audit was launched. The auditor’s suggestions were incorporated by the exchange in the strengthened risk management and surveillance mechanism. Last week, the NCDEX had a meeting in Ahmedabad (Gujarat is the largest-castor producing state) with various stakeholders in the business and received encouraging responses on re-launching the futures. Even the Solvent Extractors Association has supported the re-launch of castor seed futures because they give transparency and useful contracts for hedging and price discovery, according to a source.