Sebi bars 16 commodity brokers, traders in castorseed case

In its first major crackdown on irregularities in commodities derivatives market, regulator Sebi today barred 16 brokers and traders from the securities market for manipulation in castorseeds trading at NCDEX.
The barred entities include some well-known names in the commodities market and include Mid India Commodities, Neer-Ocean Multitrade, Investmart Commodities, Leo Global Commodities, Stride Multitrade, Vijay Saraf, Sisne Polymers and Ruchi Global Limited.
Others having been barred by Sebi, which began regulating commodities market in September last year following merger of erstwhile regulator FMC with it, are Bharat Foods Cooperative, Tanisha Multi Trading, Anju Jain, Piyali Trading, Vartika Mercantile, Secunderabad Oils, UKS Oils and Narsinpuria Korodimal.

These entities had either traded or facilitated trade of castorseed contract on leading commodity bourse NCDEX (National Commodity and Derivatives Exchange).
NCDEX had suspended trading in Castor Seed Contracts on January 27, 2016, pursuant to which Sebi also launched its probe in respect of trading in these contracts at NCDEX for the period beginning January 1.
Sebi found that prices in Castor Seed February 2016 contract at NCDEX fell by around 20 per cent between January 1 and January 27, as against around 14 per cent fall in spot prices for the same period.

It was also observed that futures prices of castor seed contracts touched lower circuit of 4 per cent on January 25, 2016 and hit lower circuit of 6 per cent on January 27.

It was also observed that the open interest in February-16 contract increased from 2,16,690 metric ton as on January 7 to 3,38,990 metric ton as on January 11. Further on January 27, the outstanding open interest in February-2016 contract was 2,83,260 metric ton.
Sebi found that trading members were collectively holding 62.48 per cent of open position in February-16 contract of castor seed which in value terms was about Rs 540 crore. Besides, positions collectively held by these members is about 10 per cent of annual production of the entire country.
Passing its order, Sebi said the "the act and omissions of the defaulting clients, not only disturbed market equilibrium but also indicate manipulative and fraudulent design to maintain the price and/or to benefit the position they were having in physical market.

"I further, prima facie find that the Commodities Trading Members have actively facilitated and helped these defaulting clients in such dubious plan, device and artifice as they have not only failed to assess the financial capacity of such clients but allowed them in such manipulative transactions in high magnitude which have potential to disturb the market equilibrium and harm market integrity," Sebi's Whole Time Member Rajeev Kumar Agarwal said in his order.
Sebi said the Commodities Trading Members are expected to be diligent and use required skill and care while acting as a trading member and have obligations to have a check on risk arising due to their clients.