NCDEX panel set up to probe contract fiasco

The National Commodity and Derivatives Exchange (NCDEX) has decided to comply with the directives issued by Forward Markets Commission (FMC) on the issue of the final settlement price of chana and urad on January 19, managing director and chief executive officer P H Ravikumar said on Monday.

NCDEX will form a committee to examine all aspects of the regulator's order, Ravikumar said.

He also said the official responsible for the modification of chana and urad January contracts would be relieved from his current duties, as per the FMC directive.

"We are a complied exchange...as a philosophy we do not want to quarrel with the regulator," Ravikumar said.

On January 19, NCDEX said the final settlement price of January urad and chana contracts would be based on the average price polled over the last five days, including the expiry date.

Normally, the settlement price is based on the price prevailing in the spot market on the day of expiry.

On January 19, late in the evening FMC had asked NCDEX to retract the decision, to which it complied.

Ravikumar said the reason behind the change in the final settlement price was owing to high level of manipulation by a group of traders.

As soon as the exchange made the modifications, January urad futures fell by 3 per cent and the chana contract by 2 per cent.

"Focus so far has been only on the process to prevent the manipulation," said Ravikumar.

However, Ravikumar said that the modification done at the last minute was a "technical lapse" from the exchange side.

"We did not consult the regulator and instead of broadcasting at 1700 IST we broadcast it at 1630 IST. For transparency reasons we thought we should give notice to the market," said Ravikumar.

"I concede it a mistake which is that we should have discussed with the Forward Markets Commission," he said. "But nobody is questioning the intent of it."

According to the directive issued by the regulator, the committee (formed by NCDEX) is expected to examine three main issues""to find any malafide intent, any disruptions in spot, and futures prices. The directive was issued by FMC on Friday.

Ravikumar hinted that the probe panel might have some independent members in order to lend credibility.

"We will take subsequent steps to ensure that this enquiry is done independently," said Ravikumar. "We will not do anything to affect the credibility of our exchange," he stressed.