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SEBI Watch: Category-wise open interest positions need of the hour

Friday, Oct 25, 2019

 

By Shrikant Kuwalekar

 

Earlier this month, castor futures on the National Commodity and Derivatives Exchange saw a settlement crisis due to excessive speculation. The fact that the exchange's risk management steps were far from adequate didn't help.

 

Traders who had built up high leveraged long positions in castor futures were cash-trapped after additional margins imposed by the exchange led to prices hitting lower circuits. The inability of traders to honour obligations towards marked-to-market losses and margins led the exchange to ensure mandatory squaring-off of long positions with penalties, among other steps.

 

This led to significant losses for traders and clearing members who had funded their investor-clients.

 

Earlier, such problems were also seen in the case of guar seed and guar gum contracts that eventually led to their suspension.

 

While the exchange said it followed guidelines laid down by the Securities and Exchange Board of India to handle the speculation and prevent suspension of castor futures, the crisis could have been averted had the commodity derivatives market adopted disclosure norms on open interest positions for different categories. 

 

For long, exchanges, traders and the regulator have been saying the market is at a nascent stage and, as such, needs hand-holding rather than tightening of regulations.

 

It must be noted that 15 years, as commodity futures were re-launched in 2003, is not a small period for exchanges to attain a respectable level of operational maturity. A regulatory intervention can help to speed-up the process.

 

One would do well to take a look at practices overseas. The US Commodity Futures Trading Commission publishes a weekly report on the commitment of traders in commodity futures, with the open positions of various categories of participants. These include commercial traders or hedgers; non-commercial traders, typically large speculators; and non-reportable traders, or retail investors.

 

The report helps traders predict market trends based on weekly variations in open interest.

 

In the case of castor futures on NCDEX, there are reasons to believe that real-time surveillance systems either failed to spot the imminent crisis, or the signs were neglected. Here, too, a report on the lines of that published by the US Commodity Futures Trading Commission could go a long way in averting such a crisis.

 

 

LATEST ANNOUNCEMENTS

* SEBI issues framework for listing of commercial papers

* SEBI asks 290 brokers to prove 'fit and proper' credential

* SEBI hikes position limit for 8-11 year interest-rate derivatives

* SEBI bars MFs from incremental investments in unlisted CPs
 

ORDERS, ADJUDICATION PROCEEDINGS

* SEBI slaps 6.2 mln rupees fine on 7 entities for violating takeover norms (PTI)

* SEBI bans Incap Financial Services' director from market for 4 years (PTI)

* SEBI moves Supreme Court against SAT's order in Price Waterhouse case (BS)

* SEBI levies 2 mln rupees fine on 4 firms for fraudulent trade in illiquid stock options (PTI)

 

REGULATIONS (Announced in the past three months)

* SEBI issues framework for listing of commercial papers 

* SEBI tightens norms for abrupt resignation by auditors (BS)

* SEBI announces guidelines for issue of depository receipts by Indian cos (BS)

* SEBI caps MFs' invest in unrated debt securities at 5% of net assets

 

DATA FROM SEBI

 

Date 

Unit

Latest

Previous

FII/FPI net equity investment   

Oct 23

 US$ mln

(-)21.01

(-)151.52

FII/FPI net debt investment

Oct 23

 US$ mln

(-)87.06

44.92

DIIs net equity investment

Oct 23

 bln rupees

1.03

(-)3.50

DIIs net debt investment

Oct 23

 bln rupees

19.42

16.13

 

IPO/FPO/NFO

* Ujjivan Small Finance Bank gets SEBI's go-ahead for IPO (PTI)

* Invesco MF seeks SEBI approval for Invesco India Overnight Fund 

* Baroda MF seeks SEBI's approval for Baroda Small Cap Fund 

* CSB Bank gets SEBI approval for initial public offering

 

SEBI IN NEWS

* SEBI probes Bharat Financial, IndusInd Bank (BL)

* Mauritius' regulator red-flags removal of investment status by SEBI (BS)

* SEBI probing huge derivatives position in Infosys before whistleblower complaint became public (Mint)

* SEC probes Infosys whistleblower letter, SEBI seeks more information

 

Sources – Television, Print, or Web Editions of: PTI–Press Trust of India, BS–Business Standard, ET–The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL–The Hindu Business Line, TH–The Hindu, RTR—Reuters, Mint, BT–Business Today, IANS–Indo-Asian News Service

 

Internet links: http://www.sebi.gov.in

 

End

 

Compiled by Nivedita Yadav

Edited by Avishek Dutta

 

Cogencis Tel +91 (22) 6619-0000

Send comments to feedback@cogencis.com

 

This copy was first published on the Cogencis WorkStation

© Cogencis Information Services Ltd. 2019. All rights reserved.

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