NCDEX to pay castor seeds hedgers

After suspending contract in January, the exchange now will pay money for which it declared close out price

National Commodity & Derivatives Exchange (NCDEX), India's leading agri-centric commodity exchange, today announced that it will pay money as per an announced formula to those who were net sellers when castor seed contracts were suspended in January last. The exchange today announced the close out price for castor seeds for those who were having net short positions across contract and also having castor seeds stock deposited in exchange-accredited warehouses at the time of suspension. Such sell positions supported by stock are also known as hedging positions. Protecting investors by paying them money is first such move by any commodity derivative exchange.

The exchange had suspended castor seed contracts on 27 January this year, when some players were unable to pay margins following a fall in prices.
 

 

A RECAP

• Jan 27 : Suspension of castor seed contracts
• Jan 29: Settlement price for open positions announced
• Feb 17: Constitution of cell for redressal of castor participants' grievances
• Feb 18: NCDEX offeres NeML platform to sell castor stocks
• Mar 2: Sebi issues restraining order against trading members and their defaulting clients
• May 6: Exchange announces close-out price for participants

Later, the exchange declared a final settlement price of Rs 3,051, at which all deals were settled. It also allowed those holding stock in NCDEX warehouses to dispose it off on the exchange's e-market platform, which is a spot trading facility. However, contracts were suspended as prices fell, and since those holding sell positions had to incur losses, NCDEX took a first-of-its-kind initiative in exchange-traded derivatives to pay the losers money. It was for this purpose that the close out price was declared.

Market regulator, Securities and Exchange Board of India (Sebi), also advised the exchange to protect the interest of genuine hedgers/investors who lost money due to suspension of castor seed contract.

"Sebi has been very strongly driving investor protection and upholding the rights of investors. NCDEX continues to echo the same philosophy and has therefore declared the close out to redress the grievances of participants affected by the suspension of the castor seed contracts." said Samir Shah, MD & CEO, NCDEX

The close out price declared is Rs 2,931, which is Rs 120 lower than the final settlement price at which the positions were squared off after suspension. This means that eligible investors of castor seeds will get Rs 120 per quintal from the exchange.

NCDEX is now preparing operational guidelines, but the note issued by it says, "The close out price has been computed in a transparent and fair manner, taking into account the Agmarket prices prevailing in Deesa, Kadi, Palanpur and Patan markets from January 28, 2016 till February 19, 2016, the cost of transportation, storage, brokerage and other incidental expenses."

At present, the exchange has announced that the claims of the registered Members and constituents of the Exchange (other than the defaulting members), who had net short positions in the Castor seed contracts traded on the Exchange platform and also correspondingly held valid deliverable stocks in the warehouses approved by the Exchange, as on January 27, 2016, shall be admissible as per the terms of the close-out.