Pepper trade scenario

R. Ramaseshan
Comment (1)   ·   print   ·  

This is with reference to an article “Revive regional commodity exchanges” (Business Line, January 24). The article states: “It was when the staggered delivery system was in force that big cartels accumulated large quantities of pepper through the NCDEX exchange and have cornered and monopolised nearly 8000 tonnes of the commodity…”

Actually, the quantity of pepper in our accredited warehouses is 6882 tonnes and not 8000 tonnes. That apart, the above statement raises two points: effectiveness of staggered delivery system and the accumulation by big cartels. There seems to be an innuendo that staggered delivery system was somehow responsible for the big cartels to accumulate. This is far from the truth.


Staggered delivery system is a system designed to better facilitate sellers to deliver and has been introduced across all commodity contracts traded on the exchange. It is now accepted by all sections of participants and markets that this system has enhanced orderly trading and expiry of the contracts.

As for cartels, the Exchange had during the month of October 2012 clubbed the positions of a few clients trading through various members of the Exchange in pepper future contracts. Accordingly to protect the market integrity, the Exchange issued directives through the members that the positions of all these clients should be reduced and brought within the single client level position limits at commodity level and near month.

Subsequently, on further probe of the trading activities of these and other related/connected entities, it is suspected that these entities have attempted to circumvent Exchange directives and have accumulated stocks through various third parties through a common C & F Agent.

The Exchange is engaged in a very detailed investigation of the trading irregularities and violation of Exchange rules and regulations by these entities.Trading of certain groups of entities and accumulation of stocks by such entities was inspite of the system of staggered deliveries; the Exchange and the regulator are looking into the actions of these entities in order to take stringent action. The Forward Markets Commission has already given certain guidelines to follow wherever there are entities acting in concert. These are being put to use.


The article states that there has emerged a call, of late, for reviving the commodity-specific regional exchanges. The reasons given are: Prices at the national commodity exchanges are distorted, operators at the national level commodity exchanges require to be controlled.

The above reasons speak eloquently as to why the ‘call’ has been given: Certain interests would not like to have pan-India price discovery and instead would like to have it contained to a small coterie with vested interests. National level exchanges provide regulated trading platforms wherein increased participation ensures better price discovery. Regional exchanges have failed to provide benefits of scale and effective regulation.

The author is MD and CEO, NCDEX.

(This article was published on February 3, 2013)
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It is irresponsible on the part of Ramaseshan to claim that the
regional exchanges have failed to provide benefits of scale and
effective regulation. It is also hypocritical of him to say that
national exchanges provide pan-India price discovery. NCDEX has
requested FMC to drop all the additional delivery centres from the
Potato contract leaving only Agra as the delivery centre. How can
single delivery centre contract have pan-India price discovery? As
regards effective regulation, the history is replete with the instances
of mis-governance by NCDEX. In the past a Chief Business Officer had to
be sacked and Exchange had to pay heavy compensation for delivering
infected Jeera through exchange-accredited warehouse. The CEOs of
Regional Exchanges are not fortunate to get the pay and perks running
into three crore of Rupees that Ramaseshan gets, thanks to passive
nominee directors of institutions - or perhaps is it active connivance
with off-balance sheet quid pro quo?

from:  Vinay Shah
Posted on: Feb 5, 2013 at 10:07 IST
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