Fresh crisis brewing in NCDEX castor contract

Suresh P Iyengar | Updated on October 01, 2019

Fresh crisis seems to be brewing in settlement of castor seed contract in NCDEX with its subsidiary National Clearing Corporation Ltd (NCCL) making frequent changes in settlement process and reversing the same as the castor prices hit the lower circuit continuously for last few days, reflecting the dynamics of the developing situation. Traders expect a default of Rs 100 crore in the contract expires on October 18.

On Tuesday, NCCL used the option of contract tear-up (compulsory closure of trading position) to restore matched book. The clearing corporation said it will select the short positions in Castor Seed contracts and on a pro-rata basis, allocate the positions for tear up.

Compensation will be paid to the non-defaulting members whose contracts have been selected for tear up. The compensation shall be paid at 12 per cent on dDaily sSettlement pPrice of respective Castor Seed contracts as on September 30.

The partial tear up trades will be executed at the daily settlement price of respective contract of Castor Seed as on September 30. The compensation will be settled through credit in the settlement account on October 3, it said.

The exchange also conducted a special auction for sale of 23,870 tonnes of castor for an hour to close out the buy positions of members who have failed to meet their margin obligations. Similarly, rolled back the 5 per cent additional margin on both buy and sell side within two days of its announcement late last month.

A mail sent by BusinessLine to both NCDEX an NCCL remained unanswered.

Narinder Wadhwa, President of Commodity Participants Association of India said the clearing corporation is clueless on how to tackle the situation and is making frequent adhoc decision impacting the market.

In a meeting along with SEBISebi and the exchange, CPAI had suggested levy of 50 per cent additional margin on the sell side but the exchange had put only 20 per cent which the traders sitting on 16 per cent profit easily absorbed, said Wadhwa who is also the Managing Director of SKI Group.

Unfortunately, he said the crisis in castor contract on NCDEXcdex is pulling down spot market prices when the farmers are about to bring their kharif harvest for selling.

Castor seed contract has fallen from a high of Rs 5,900 a quintal early September to current level of Rs 4,638 after hitting the lower circuit for last on week.

Wadhwa said as castor is a narrow commodity with market value of Rs 1,600 crore, a few traders can come together and jack up prices easily in futures market. Exchanges levy few restrictions when agriculture commodity prices move up unilaterally.

In fact, Wadhwa said the association had told the exchange to levy client-wise margin rather than putting it on trading and clearing member.

Published on October 01, 2019

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