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Regulators deploy different tools to rein in speculation and enforce discipline, including passing on subtle messages to market participants.
Recently-appointed SEBI Executive Director VS Sundaresan released the special investor awareness edition of MCX — in the form of a cartoon collection titled The Monk who Trades — at an event held by the Commodity Participants Association of India. He also narrated an interesting story on what investors, brokers and intermediaries should not do while trading on commodity exchanges.
The tale
Recounting the tale, he said a clever businessman once entered a village and told the people he would pay ₹200 for every monkey they caught and handed over to him. In a few days, the businessman amassed quite a few monkeys, and raised the prize money to ₹500. So people went to far off places searching for monkeys.
Later, the businessman said he was enhancing the prize money to ₹1,000 per monkey, but leaving his assistant to manage the business, as he had some work outside town.
The villagers were disappointed that they could no longer find monkeys easily. Meanwhile, the businessman’s assistant struck a deal with the locals, saying he would give away monkeys for ₹600 each — they could turn them over to the businessman and collect ₹1,000 each. The money started pouring in, with people buying monkeys to make a quick buck.
In a few days, both the businessman and his assistant vanished with the booty, leaving the monkeys behind.
The lesson
Indirectly linking the incident to the recent castor seed crisis at the NCDEX, Sundaresan said market participants should desist from wrongdoings as it would set off a fear psychosis among investors, particularly when the regulator was trying to build confidence and deepen the commodity market by allowing new sets of institutional investors to trade.
Initially, to solve the castor seed issue, market participants had suggested a ban on the trading of the commodity. But SEBI desisted as it would send a wrong message to investors. Finally, the option of tearing off the open position was used to settle the issue, he said.
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