Brokers, Clients Default As NCDEX Castor Seed Futures Tumble
A plunge in castor seeds prices has triggered defaults by brokers and clients of NCDEX Ltd., forcing clearing corporations to settle trades and the bourse to auction the commodity.
Prices of castor seed futures have tumbled more than 28 percent from September high, according to Bloomberg data. The contracts have fallen for six straight sessions, losing 12 percent in the last week of September.
The slide came on expectations of a bumper crop after heavy rainfall in the second half of the monsoon season, which triggered short selling. But traders and brokers who had gone long in July after a late and uneven start to the rains are stuck.
“There are some members who have not been able to pay the margin and mark to market obligations relating to trading positions in castor seed,” Vijay Kumar Venkataraman, managing director and chief executive officer at NCDEX, told BloombergQuint. “Despite the sudden volatility and settlement issues, payments have been made to counter-parties via the clearing corporations. There is no issue at all with respect to settlements and payouts of trades in castor seeds.”
The contracts were locked at 6 percent lower circuit on Tuesday with an open interest for 3.1 lakh quintals of the commodity worth Rs 150 crore, according to NCDEX.
NCDEX imposed margins for short sellers on castor seed futures and also revised the circuit limits. The National Commodity Clearing Ltd. held auction for 23,870 million tonnes of the commodity given the inability of the members and to honour pay-in and margin obligations.
The exchange held two auctions for more than Rs 100 crore worth of castor seeds, including a tear-up bid where non-defaulting traders holding short positions were segregated and offered a compensation of 8 percent over Monday’s settlement price.