FMC directs probe into guar gum trading

Asks comexes for details on funds, trades of top 25 clients in segment, with initial report on movement of futures prices

The Forward Markets Commission (FMC) has asked commodity exchanges to investigate the accounts of their top 25 clients in guar trading. It wants a detailed report by the end of this month.

The commodity derivatives market regulator suspended futures trading in guar in July last year, suspecting price manipulation. Involved in the artificial rigging were, it appears, a number of renowned traders; investigations are still on.

“You (exchanges) are directed to forward the copy of bank account statements of the top 25 clients to track the source of funds used in trading guar seed/gum. Also, exchange may conduct a preliminary enquiry and submit the report within 15 days on the price movement of guar gum and seed futures contracts and observations of the surveillance team of the exchange on the price movement/suspect traders,” says the FMC directive. It adds, “If the member has business on his own account, his profile indicating the names of partners/directors shall be forwarded.”

The details should also incorporate which side clients have taken a position since the start of relaunched contracts, alongwith overall long and short size positions held.

After the relaunch of guar gum and guar seed contracts, high price volatility has been observed. While approving the contracts of guar gum and seed, the exchanges were directed to ensure no unhealthy speculative trading. To avoid a repeat of last year’s price manipulation, the FMC had directed exchanges to call for a statement of physical stocks owned by clients who hold 75 per cent or more of the permitted position limit whenever deemed necessary.

Yet, guar gum and seed trading hit the circuit limit on either side almost every other day on the benchmark National Commodity & Derivatives Exchange (NCDEX). Since the fundamentals are unchanged, FMC believes this is due to excessive speculation in the futures market.

Since the relaunch of guar contracts on the NCDEX on June 20, after around a year of suspension, the gum price has ranged between Rs 11,510 a qtl and Rs 28,150 a qtl every month. Guar seed has moved between Rs 9,500 a qtl and Rs 4,000 a qtl.

Unlike last year, the FMC has asked exchanges for a preliminary investigation report.

Priti Gupta, executive director at Anand Rathi, the financial advisory, said: “The regulator, with all such details in hand (as has been now asked for) will be able to preempt any untoward incidents. Instead of suspending futures trading, it is better to avoid cartelising for better use of the futures trading platform for genuine hedgers.”

 

The details should also incorporate which side clients have taken position between since the start of re-launched contracts alongwith overall long and short size positions held by them.