Circular trading on MCX, traders warned

Despite various measures being taken by the commodity market regulator Forward Market Commission...

Despite various measures being taken by the commodity market regulator Forward Market Commission, the futures market is yet to free itself from the grips of the manipulators.

In a recent alert to its trading members, Multi Commodity Exchange MCX has warned a section of traders who are indulging in circular trading in few illiquid commodities. 8220;It has been noticed that in certain cases the trades executed by the members, particularly in illiquid contracts are at abnormal prices, which are not in consistency with spot and futures prices of the underlying commodity,8221; said Kalpesh Shukla, Vice president, MCX.

The exchange further adds: 8220;It is observed that these trades are done by the same clients of a member, or between two members or between two clients of the same member, who form the counterpart of the trades executed between them. Such trades are unwarranted, unethical and unbecoming on the part of a member.8221;

Threatening to levy stiff penalties on members indulging in such trades, Shah said 8220;the members are advised to refrain to execute such trades that do not appear to be normal. The exchange may levy penalty for non-compliance on per instance basis including initiating such appropriate disciplinary actions as deemed fit.

8220;The regulators should take strict action against manipulators as commodity trading has a good future in India. Exchanges should put spruce up the surveillance to crack down on circular tradings,8221; said Ajoy Pathak, Research Head, Kotak CSL.

The exchange has also warned disciplinary action against the members and it would take up the issue with the FMC if the matter turns for worse. 8220;The are advised to keep away from such trade practice. Further, the details of the participants found to be participating in such abnormal trades will be sent to the FMC as and when required,8221; MCX said.

Such illegal trading acitivies can also scare away retail investors who have just started venturing into nascent commodity trading in India. 8220;Exchanges should first take efforts to bring in liquidity into the illiquid contracts by making suitable adjustments in contract designs and promoting the products,8221; said Pathak.

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Earlier, FMC had told the exchanges not to renew illiquid contracts for trading after it expires and has given the exchanges free hand to decide on which contracts need to be cancelled. A large number of varieties of the same commoditiy is also making life difficult for the traders.

ILLIQUID CONTRACTS

NCDEX: Brent Crude, Electrolytic Copper, Coffee, Cotton, Crude Palm, Oil, Groundnut Seed, Rice, Mulberry Silk, Rapeseed, Jute, Rubber, Soybean Meal, Furnance Oil, Sponge Iron.

MCX: Rubber, Red Chilli, Black Pepper, Cashew, Polypropylene, HDPE High Density Polyethlene, Rice, Maize, Jute Raw, Rapeseed, Oilcake,Palmoil, Mild Steel.