The Hindu Business Line : Price manipulation in rubber futures unearthed

THE record rubber prices registered in the July futures market have been the result of manipulation, marking the first ever instance of such a thing since futures trading in rubber began over a year ago.

The Managing Director of National Multi-Commodity Exchange of India Ltd (NMCE), Mr Kailash Gupta, confirmed that the high price in the July futures at the NMCE was the result of `circular trading' by one participant, who has since been identified.

The July futures recorded the highest-ever price of Rs 75.07 per kg on July 13. It was traded at over Rs 70 a kg from July 9 onwards, before it closed at Rs 68 on July 15.

Mr Gupta said the trader, who had indulged in circular trading, was buying and selling from and to his sister concerns, thereby artificially jacking up the prices. The shortage of rubber in the spot market added to the price flare-up.

The unusual surge in prices was noticed by NMCE. The volumes traded were also thin and actually on July 13, there was only one deal quoting the record price.

"We have condoned this (act) since he has confessed and apologised. Also, this is the first time such a thing has happened," Mr Gupta said, while refusing to name the trader. He said there might have been more players involved in the racket, but only one was identified.

Mr Gupta said NMCE had stepped up vigil because even if the volumes traded at the futures market are low at this point of time, the trade can impact the spot prices and hence affect a large section of people and the economy.

In futures trading, buyers and sellers enter into contracts to buy/sell rubber at a future date, at a price they agree currently. The seller need not have physical stock at the time of striking of the deal as he is expected to deliver it only at a future date. The parties often end up squaring off the deal without actually selling/buying the physical rubber.

The industry is of the view that the spot prices are being affected by the quotes in the futures market to a great extent, and this is the prime reason why domestic prices are not falling in line with global trends.

Currently, natural rubber in the domestic market is dearer by about Rs 10 a kg over international rates.

Concerned over this, it is learnt that the Rubber Board has taken up with the Commerce Ministry, the issue of `speculative trading' in the futures market and its impact on spot prices.

The Board is of the view that the high rates quoted in the futures market created an impression that there would be further price increase in the coming days, making growers and dealers to withhold stock.

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