MCX tanks 10% on whistleblower allegations

Suresh P Iyengar Mumbai | Updated on September 04, 2019 Published on September 04, 2019

Exchange denies charges

Shares of MCX, the country’s largest commodity exchange, tanked over 10 per cent as market regulator SEBI sought clarification from the exchange on a whistleblower allegation of trouble in settlement of its recent gold and cotton contracts.

Shares of the company on the BSE were down 10.09 per cent at ₹879 on Tuesday.

Refusal to take delivery

Early last month, BusinessLine had reported that some of the traders were refusing to take delivery of cotton from the exchange accredited warehouses as the quality was inferior.

Based on a whistleblower allegation, BusinessLine reported that about 2.14 lakh bales of cotton were deposited in the exchange warehouses in Maharashtra and Gujarat between last November and this July.

Of this, over one lakh bales are still undelivered due to quality issues, said a trader.

While taking delivery of cotton from warehouses is time consuming, a big trader holding a large stock has raised some quality issues with the MCX over some of the bales he had tested, sources said.

The cotton trader is yet to test the quality of the entire quantity he holds. One bale is equal to 170 kg.

These allegations were raked up by certain media again on Tuesday.

Insurance cover

The cotton stocks lying in the warehouses are supposed to have higher moisture content, more than that specified in the cotton contracts, he added.

The need for higher insurance cover after gold prices increased sharply was an issue in gold delivery, said a trader.

The exchange had to hike its insurance cover for gold overnight to manage the delivery.

MMTC-PAMP, a bullion refinery that tried to deliver the contracts, faced hurdles as one of the bullion vaults first sought adequate cover.

It was feared that traders seeking delivery of gold may not have adequate capital as it was for the first time that such a huge amount of the metal was marked for delivery.

Denying the allegations, MCX said the redressal mechanism available within the regulations which includes re-testing is known to all market participants and till date there is no delivery that has failed on account of quality parameters in cotton.

The exchange had handled the highest ever delivery in gold and cotton contracts, it said.

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Published on September 04, 2019
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