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Sebi upgrading surveillance for CommExes

March 4
2:06 AM 2016

India's securities market regulator Sebi is taking measures to upgrade its surveillance system on commodity exchanges (CommExes). Sebi has issued restraining orders to 16 commodity trading members for manipulating castor seed futures. Sebi has also tightened margins and open interest positions.

Securities Exchange Board of India (Sebi) and National Commodity & Derivatives Exchange (NCDEX) are enhancing and strengthening the surveillance system for commodity exchanges in the country. Sebi is in the process of integrating an online surveillance system while NCDEX has assigned a two-tier investigation in castor episode.

Business Standard reports that Sebi is streamlining the lapses in futures markets from all angles. Indian market regulator has tightened margins and open interest (OI) positions on March contracts. Sebi is keen on integrating market integrity, governance and investor protection into a fool-proof system. 

Responding fast to the manipulation by some brokers in castor seed contracts, Sebi has barred 16 commodity trading members and clients from trading and other dealing activity in the securities market. These brokers have indulged in manipulative and fradulent trading activity in castor seed futures contracts on NCDEX. 

The Economic Times further lists out key members, who have been barred by Sebi, stating Leo Global Commodities, Ruchi Global, Investment Commodities and Neer-Ocean Multitrade. NCDEX in February suspended trading in castor seed contracts. Sebi had a preliminary examination for period of 1-27 January 2016. During this period, castor seed February 2016 contract on NCDEX tumbled 20 percent, while spot price dropped 14 percent. 

Rajeev Kumar Agarwal, a whole-time member in Sebi, in his order said "Commodities trading members are the first level gatekeeper and have direct visibility to the risk profile/ financial health of the client and must take precautionary steps to maintain market integrity. Rather, it has been noted that Mid India Commodities had defaulted in its proprietary account."

The trading suspension of fraudulent brokers is further indicating the lapses in the system. The ongoing manipulation in trading practices and subsequent trading suspension or other punishment are also disturbing the market equilibrium. Of late, some brokers and trading houses have indulged in designing and maintaining price levels in a more manipulative and fraudulent manner, as reported by The Hindu Business Line.

Sebi has also observed the inability of Mid India Commodities, which has built up large positions, to collect Mark-to-Market (MTM) pay-in obligations. In turn, it asked the exchange to square off its position. Three more members of NCDEX, Neer Ocean Multitrade, Investsmart Commodities and Leo Global Commodities, were unable to collect MTM and requested the exchange to square off the positions of their clients.

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