NCDEX avoids payment default in castor seeds
Mumbai: Looks like the contagion from problems in the banking & NBFC space that’s percolating into the stock and debt markets is spreading to other segments as well. On Tuesday, commodities bourse NCDEX auctioned castor seeds worth about Rs 110 crore after some brokers and traders were on the verge of default. The price of castor seeds has crashed over 20% in the last 10 sessions.
According to NCDEX, the exchange’s risk management framework stipulates that if a broker fails to honour his pay-in or margin obligations, its trade clearing arm may take some decisions to sell off the positions of those brokers to restore smooth operations.
On Tuesday, a circular by NCDEX said that it had decided to auction nearly 24 lakh kg of castor seeds “to close out the open long positions in (these contracts) of members who have failed to meet their obligations”.
NCDEX sources said that by taking proactive steps, the exchange was able to contain the damage and avoid a default. The oil seed’s price trend on NCDEX for contracts for delivery this month showed that from a recent high of Rs 5,966 per 100 kg on September 20, the price was down at Rs 4,760 on Tuesday — a slide of almost 20% on a closing basis.
This slide in price of castor seeds took place despite shrinking arrivals of the product, which peaks during the December-March period. There are reports that markets regulator Sebi was also closely looking at the recent developments in the castor seeds trading on NCDEX.
Another proactive measure, to curb excessive speculation in this oil seed, was to hike margin requirement, traders said. It had also extended the start of the delivery period for castor seeds contracts from October 3 to October 11, thus giving more time to sellers to meet their delivery obligations.