All about NCDEX castorseed futures

NCDEX has re-launched castorseed futures contract with approval from SEBI. In January last year, the exchange had suspended all castorseed futures contracts after price rigging by some traders. The new contract’s symbol is – Castor (changed from castorseed earlier). Transaction charges have been reduced to ₹2 per lakh of trade. Contract specifications, however, remain the same. Each contract will be of 10 tonnes and the quotation will be in ₹/100 kg. It will expire on the 20th of every month. Upon expiry of the contracts, all the outstanding open positions shall result in compulsory delivery, as before. The daily price limit allowed is +/- 3 per cent. Once this limit is reached, after a gap of 15 minutes, the limit will be further increased by 1 per cent. The minimum initial margin on the contract is 4 per cent. Whenever there is an increase in volatility, the exchange may also levy a Special Margin. At the client level, the maximum position limit allowed is 12,000 tonnes. However, registered hedgers will be given an exemption. The maximum position limit for a member is 1,20,000 tonnes or 15 per cent of the market-wide open interest. The final settlement price of the contract will be arrived at by taking the average spot price of the last three days. The contract will be traded from Monday to Friday, and, open from 10 am to 5 pm. The main delivery centre is in Deesa, Gujarat.

Stringent norms

In commodity futures, there is always a limit on the open positions for a member and a client. In the castor seed case last year, there was no breach of these limits, but still, the participants were able to rig the price.

Taking lessons from this, SEBI introduced a set of new regulations in the same month. It said that the maximum number of positions for a client in a near month contract can be only one-fourth of his overall positions in the commodity (including near, mid and far-month contracts). Also, for the purpose of calculating the overall exposure of a client in a commodity, longs and shorts across contracts will not be netted out. They will be considered separately and the higher of the two shall be considered as the open position. Further, for members who trade on proprietary books, position limits will be determined the way it is done for clients.

In the last one year, NCDEX has also taken measures to check market concentration and make its surveillance process robust. It has introduced concentration margins, penalties for late payments of member obligations, and an initial margin structure for commodities that is based on liquidity.

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