FMC to probe Ncdex snag

The Forward Markets Commission (FMC) has asked the National Commodities and Derivatives Exchange (Ncdex) to submit a report, explaining reasons that led to the closure of the exchange on Saturday for more than three hours.

"We expect an explanation on Monday and then we will take a view on whether any action needs to be taken," said S Sundareshan, chairman, FMC.

While technical snag was cited as the reason, rumours of a payment crisis gripped the market.

On Saturday, trading on the Ncdex started on a weak note and soon some spices, such as chilli and pepper in which heavy speculative positions were built up, hit the lower circuit. In fact, futures of these commodities were on a downslide for the last three trading sessions.

At 10.49 am on Saturday, V-sat operations were affected and Ncdex had to switch off trading. At this time futures prices of chilli, pepper, and some pulses were locked in at lower circuits. This sparked off rumours of a payment crisis.

Ncdex managing director PH Ravikumar, however, denied this. He said, "There is no payment crisis at the exchange and the pay-in was completed successfully. We also have Rs 1,200 crore in our settlement and trade guarantee fund. There is no need to panic."

Exchange authorities are probing what went wrong at the Noida based-service provider that led to the snag and whether any broker tried to encash the situation by spreading rumours.

Representatives of HCL Connect, the service provider, have been summoned for an explanation on Monday.

Prices of chilli, black pepper and urad have been falling for the last three sessions and the trend continued on Saturday as well. Now futures prices of wheat, chilli and a few other commodities are lower then their spot prices. "We are investigating backwardation in some commodities," said Ravikumar.

Traders, however, offer a different view. "For the last few weeks the 'quality' of chilli deposited in warehouse of Ncdex has been below specification," said Ashok Datani, of the Vashi-based Ashok & Co. This has led to selling in chilli on the Ncdex.

Ravi kumar, however, rubbished the quality-related angle adding, "Recently huge quantity of chilli delivery took place on the exchange and there were no complaints." Market sources said an Ncdex team visited Guntur and sorted out some quality-related issues in the beginning of the month.

"We are waiting to see what happens on Monday," said Biren Vakil, a director with the Ahmedabad-based Paradigm Commodities. According to him, bulls were becoming weak and taking clue from this the bears hammered down prices further.

"Although open interests have been falling for the last few days, if it can be established that 'cornered' bulls are unwinding their positions then market forces should be allowed to function," said a Mumbai-based trader.

An Ncdex source said some stop-losses were triggered on Saturday, adding fuel to the fire. He also said that some consultation with members concerned were going on to ensure that there was no payment crisis on the exchange.

Market sources said red chilli and black pepper prices were taken to an abnormally high level by a handful of traders.

Pepper for November delivery declined by about 34 per cent over the last 40 days to close at Rs 10,385 a quintal on October 28 from Rs 15,503 per quintal on September 20. Open interest during the period under consideration too slumped by about 20 per cent. In the spot market, however, the price failed to reflect the near-month futures.

In the case of pepper, prices declined from Rs 13,620 a quintal to Rs 11,674 with several downward circuits. In the last two trading sessions, spot price of pepper declined by Rs 847 a quintal.

The near-month chilli contract closed lower at Rs 4,648 a quintal from Rs 4,766 a quintal the previous day and Rs 6,291 a quintal in the beginning of the month.