Sebi cracks whip in castor seed futures scam

Restraining orders against 16 traders, including Ruchi Global

The Securities and Exchange Board of India (Sebi) has taken its first penal action after it started regulation of commodity derivatives. It has issued restraining orders against four broker members and their 12 clients, including Ruchi Global, for apparently manipulating castor seed contracts by taking excessively high positions, knowingly beyond their capacities to service these, and later defaulting.

The order of Rajeev Kumar Agarwal, wholetime member, Sebi, says this is an interim one, pending full investigation. Till then, these four commodity trading members and their 12 clients are not to buy, sell or deal in the securities market, either directly or indirectly, in any manner.” Commodity exchanges, stock exchanges and depositories are to strictly enforce this.

According to Sebi, the total value of Open Interest (OI, unsettled contracts) held by defaulting clients was approximately Rs 540 crore, 62.5 per cent of the OI, all on the long side.

There was default on the contracts in question by not paying the required margins when castor seed prices fell in January. That ultimately led to suspension of castor seed contracts by the National Commodity and Derivatives Exchange (NCDEX). The Sebi investigation had found 13 clients of four NCDEX members were holding long positions totalling 62.48 per cent of the total OI in the February contract. They were frequently showing their inability to pay mark to market (current price revaluations) margins when prices started falling and their long bets went wrong.

NCDEX suspended the contract as it was creating huge defaults and a systemic risk. After that, the exchange also put trading terminals of four members — Mid India commodities, Investsmart Commodities, Leo-Global Commodities and Neer-Ocean Multitrade — under squareoff mode. Mid India had also defaulted in paying margins for its proprietary positions. They together had 12 traders.

Ruchi Global, a very large trading firm in the oil business was a client of Investstart.

All the affected parties have been given 21 days to file their objections.