Sebi seeks explanation from NCDEX on castor seed matter

Capital markets regulator Sebi has sought explanation from commodities derivative exchange NCDEX in the matter of castor seed contracts, whose futures trading was suspended with immediate effect last evening.
Sebi has asked the National Commodities and Derivatives Exchange (NCDEX) to explain what were the factors that led to suspension of trading and also the measures that were being taken by the exchange while positions were built up in that commodity, sources said.
The Securities and Exchange Board of India has also sought details about the risk management measures in place at the commodity exchange.
Sebi has been keeping a tight vigil on the commodities derivatives market ever since it began regulating it pursuant to the merger of erstwhile commodity regulator FMC with it.

When contacted, an NCDEX spokesperson said the exchange would reply to Sebi at the earliest and the regulator was also informed about the decision to suspend trading.
The decision was taken after consulting the board, after the exchange apparently found the open interest positions for the next month contracts to be high and the prices were low.

In a circular, the exchange had said yesterday it was suspending futures trading in all running castor seed contracts to "safeguard market integrity and maintain equilibrium".
"We have suspended futures trading in all running castor seed contracts at close of business today under the provisions of the bye laws and regulations. The outstanding positions will be settled at the daily settlement price as at the end of day January 27," NCDEX had said after the decision.

NCDEX said the contract has been under surveillance for some time and the price discovery process was getting affected, making it necessary to take the necessary steps.
With the new arrival season, any disturbance in efficient price discovery in these contracts could have had adverse impact on orderly functioning of the market, NCDEX said.
Sebi said commodity exchanges willing to start trading in options contracts would have to take prior approval of the regulator for which detailed guidelines will be issued in due course.
The introduction of new commodity derivatives product is considered to be conducive for the overall development of the market, attracting broad base participation, enhancing liquidity, facilitating hedging and bringing more depth to the market.

The decision was taken on the basis of recommendation made by Sebi's Commodity Derivatives Advisory Committee (CDAC).
Earlier this year, Finance Minister Arun Jaitley in his Budget 2016-17 speech, had announced that new derivative products will be developed by Sebi in the commodity derivatives market.
The turnover of commodity exchanges stood at Rs 67 lakh crore in 2015-16, up 9 per cent from the preceding fiscal.
At the end of June, the aggregate turnover in agricultural commodities at all the three national exchanges - MCX, NCDEX and NMCE - stood at Rs 77,696 crore, while that of the non-agricultural commodities was at Rs 5.73 lakh crore.