Sebi bans 16 firms from commodities

MUMBAI: Markets regulator Sebi on Wednesday cracked down on 16 entities for irregularities in the commodities derivatives market by banning them till further orders for manipulating trading in castor seeds futures on National Commodity & Derivatives Exchange (NCDEX) a few months ago. Of the entities banned by Sebi, four are commodities brokers - Mid India Commodities, Investmart Commodities, Neer-Ocean Multitrade and Leo Global Commodities - and other well known names in the space which include Ruchi Global, Stride Multitrade, Vijay Saraf and Sisne Polymers.

Sebi investigations into trading of castor seeds in the February contracts found that the aggregate positions of these fours traders and their clients amounted to about 10% of India's total annual production of castor seed, and was worth about Rs 540 crore. All these entities had either traded in castor seed contracts or facilitated the trades on NCDEX.

After building such large concentrated positions, some of the entities failed to meet their margin requirements with the bourse which put the whole commodities derivatives market at risk from the contagion effect of a probable default in castor seed segment. NCDEX had suspended trading in castor seed contracts on January 27.

Sebi investigation found that these entities which had large positions in castor seed faced margin pressure after prices of these seeds in the spot market fell by around 14% between January 1 and January 27, 2016 and about 20% in the futures market. The regulator also found that these four brokers, either directly or on behalf of their clients, were collectively holding 62.48% of open position in February 2016 castor seed contracts.

Sebi rules require that brokers should refrain their clients from building concentrated and large positions. Instead in this case, Sebi investigation found that the brokers helped their members to build large positions. Since September 2015 Sebi has been entrusted regulation of the commodities derivatives trading space which was earlier under Forward Markets Commission (FMC).

In its order, Sebi member Rajeev Kumar Agarwal said that the acts of the defaulting clients, "not only disturbed market equilibrium" but also indicated "manipulative and fraudulent design to maintain the price and/or to benefit the position they were having in physical market".