Castor seed futures prices on the NCDEX fell sharply in January in comparison to the spot market. Players holding long positions as high as 62.5 per cent of the total open positions were trapped and were unable to pay mark-to-market margins.
To avoid systemic risk the NCDEX on January 27 suspended the contract and put the terminals of four brokers in square-off mode. On Wednesday, the Sebi restrained these four brokers and 12 of their clients, many of whom are big players in the oil seeds business, from acting in any form on any exchange in the securities market.
“Sebi is dealing the issue with from all angles — market integrity, governance, investor protection as well as systemic,” a source said.
Sebi initially focused on limiting the damage by tightening margins and open interest position norms for near month contracts effective March. It then initiated action against those indulging in market manipulation. System upgradation will follow once risk management at the exchange level is improved.
The NCDEX is conducting an internal audit into the developments. The exchange is also conducting a forensic audit of systems. The first report is expected soon and the second one in a few weeks.
Sebi is integrating its surveillance system with commodity derivatives. The regulator, said the source, was also looking at governance standards at all commodities exchanges. A revised margin mechanism will be in place at commodity exchanges from April that is comparable with stock exchanges.
The Sebi investigation has brought out the fact that the accused were manipulating contracts with fraudulent intent and increasing open positions beyond their capacity. Since the Sebi order gives the accused three weeks to respond, they will not be able to trade in securities market in any way.
The NCDEX spokesperson also said surveillance had been beefed up in the spot market.