Regulator calls for fresh data from NCDEX

The Forward Market Commission (FMC) has called for fresh information from the National Commodity & Derivatives Exchange (NCDEX) in regard to the change in settlement terms of chana and urad January contracts in alleged violation of regulatory norms. The FMC had met the NCDEX brass on January 27.

"We have sought more details and would like to know what forced NCDEX to change terms without prior approval of the commission. The final decision would be made within a day or two," said Anupam Mishra, director, FMC.

Mishra denied any delay in taking the decision but said the FMC would verify all documents before taking its decision.

On January 19, the new settlement terms triggered panic selling as a section of traders assumed that the settlement price due on January 20 could be lower than the prevailing price of chana and urad.

NCDEX had displayed on its website at 4:16 pm on January 19: "Members are informed that the final settlement price of chana and urad January contract will be determined on the basis of average of polled prices of last five days including expiry day".

This was against the normal practice which takes the final spot price on the expiry day as the settlement price. The exchange subsequently withdrew the notice late evening on the same day, following FMC's directive.

Approximately, 250,000 tonne of these commodities were traded in just 45 minutes of trade between the announcement of change in terms and close of the day. The price of urad slipped to Rs 2878 a quintal during the panic selling.

It opened at Rs 2,987 in the morning of the same day. The next day, urad opened at Rs 3068 a quintal. A section of traders claimed to have lost heavily following the fluctuation in prices.

In a letter to the NCDEX board, the Pulses Importers Association said the violation of the regulatory norms was planned in advance, over a week before January 19 when the incident took place.

"Since Regulation 3.23 (for Spot and Derivatives Market of NCDEX) was an obstacle in the path of this design," it was substituted on January 11, the association's letter said.

The substitution said: "The final settlement price for a derivatives contract shall be the price, as announced by the relevant authority, on the last trading day of the contract for the purpose of settlement of transactions in the said contract."

The original regulation said: "The final settlement price for a derivatives contract shall be the spot price, as announced by the relevant authority, of the underlying commodity on the last trading day of the contract."

The letter, drafted by legal firm S Sagar Associates, said: "Our clients (members of the Pulses Importers' Association) reserve their rights to claim damages from NCDEX, as their are in the process of being assessed."

Industry sources said the FMC can supersede the exchange's board if it finds the exchange guilty of violating regulatory norms. It can also impose penalty or suspend senior officials, if found guilty.