Castor crisis: NCDEX closes defaulting members’ contracts worth ₹735 crore

The crisis-ridden NCDEX has squared off castorseed contracts worth ₹735 crore of the defaulting clients to douse the raging controversy for now, using the contract tear-up option for the first time ever. It has also auctioned 370 tonnes of buy positions at the reserve price of ₹4,650 crore to avoid a potential default during the October contract settlement, which will begin from October 11.

The exchange will levy compensation of 8 per cent and a penalty of 5 per cent on defaulting clearing members. The compensation will be paid to members who have given their consent for a voluntary tear-up their sell positions, it said.

The exchange had torn up 138,570 tonnes, including the open position of current defaulting members and allocated it to the sell position on a pro-rata basis. The amount will be settled in the settlement account on October 7 until when an equivalent amount will be blocked from the collateral of the member concerned, it said.

Rajiv Relhan, Managing Director, National Commodity Clearing, told BusinessLine that the exchange has managed to remove the defaulting members’ position using the tear-up mechanism and had brought down the open interest position in castor seed contracts by about 50 per cent.

As on date, he said the collateral of members matches their clients’ open position but that the clearing corporation was nevertheless keeping a close watch on member collateral.

Meanwhile, the castor seed contract fell for the sixth consecutive day on Thursday and was locked at the lower circuit of 4 per cent at ₹4,454 a quintal. While there is some sort of relief after tear-up of a contract, the market needs to keep a close watch, said an analyst.

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