FMC cracks down on NCDEX

The move by National Commodity and Derivative Exchange NCDEX on Thursday to change the contract terms mid-way sent the commodity markets i...

The move by National Commodity and Derivative Exchange NCDEX on Thursday to change the contract terms mid-way sent the commodity markets into a tizzy, prompting regulator Forward Markets Commission FMC to step in and ask the exchange to withdraw the decision on Friday.

The FMC move followed the NCDEX decision to abruptly change the terms of running contracts of urad and chana8212;particularly when the January contract was to expire on Friday8212;wiping out several crores from investors8217; kitty.

NCDEX normally follows a system of settling the urad and chana contracts by taking into account the average spot price on the day of the settlement. However, late on Thursday evening, the exchange changed the system for the settlement by taking into account the last five days8217; average before contract expires.

Coming down heavily on NCDEX8217;s unilateral decision, FMC chairman S Sundareshan said: 8216;8216;Definitely, the terms of the contract cannot be changed mid-way. It is a serious offence and a clear violation of our instructions. A committee of FMC met late last evening and decided to cancel the new NCDEX order. We have ordered a status quo as far as the contract settlement is concerned.8217;8217;

On Thursday, the January contract for one quintal urad opened at Rs 2936 and closed Rs 2,894, showing a fall of Rs 42. Similarly, the February contract opened at Rs 2,582 and fell sharply to close at Rs 2,548, losing Rs 34. The January contract for channa also followed the trend by opening at Rs 2068 and closing Rs 2027, losing Rs 41. The February contract lost Rs 16.

8216;8216;The losses per contract look small. But when calculated for the entire trading day it works out to over Rs 100 crore. Who will take up the responsibility for the loses? How will investors be compensated?8217;8217; questions Suman Bannerjee, a trader from Kolkata.

When contacted, NCDEX officials were not available for comment.

8216;8216;Though it is intriguing why NCDEX has effected a change just before the end of the day8217;s trading, investors have to blame themselves for their losses. Investors8217; decision to quit their position is a knee-jerk reaction even without knowing what will be the impact,8217;8217; says Sushil Sinha, Regional Head, Karvy Commodities.

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FMC has started investigating the matter and does not want to comment on the losses to the investors. 8220;Our priority right now is to set right the damage done to the market. Once our investigations are over we will decide whether investors have to be compensated or not,8221; said Sundareshan.