Post castor fiasco, some brokers to stop farm futures trade from Mon

Saturday, Oct 12, 2019


By Shrikant Kuwalekar 


MUMBAI – Following issues in settlement of castor futures recently, some brokers have decided to stop providing services in agricultural commodity futures claiming absence of proper risk management. 


"As a strategic business decision…we wish to inform you that from Oct 14, fresh exposure would not be permitted in agri commodities," said a note sent by Angel Broking to its clients. The brokerage cited liquidity constraints as a reason for the decision, adding that only squaring-off of positions would be allowed.


Many brokers and their members had suffered huge losses in castor futures, which witnessed a major settlement defaults in the past three weeks due to over 26% decline in prices in a series of lower circuits.


The crisis in castor was allegedly due to failure of risk management systems and to avoid the repeat in other narrow commodities, some brokers have decided to abstain from the farm segment, sources said.


Leading brokerage Motilal Oswal has also taken a decision similar to Angel Broking.

"We are not allowing fresh positions for now. Existing clients and hedgers are allowed to close their positions in due course. The management, however, is yet to take any decision (on whether to discontinue farm futures segment parmanently),"  an official with Motilal Oswal said.


Another Mumbai-based leading broker in farm futures has significantly increased margins over and above the statutory levies by exchanges as an additional risk management exercise. "This is to discourage clients from participating in farm futures which could wipe out their wealth in volatile market,"  said an official with a warehouse services providing company.


However, NCDEX Managing Director and Chief Executive Offiver Viijay Kumar Venkatraman said the exchange has not received any intimation on brokerages' decision.


He also defended NCDEX's action in castor futures, claiming the exchange received applause from various market functionaries for various risk management steps it took to prevent settlement defaults converting into a crisis. 


NCDEX accounts for around 90% of volumes in farm furures and MCX accounts the bulk of the rest. BSE had entered the commodities segment a year ago and has cotton, guar, turmeric, chana, castor and soybean in its portfolio.


"It is the knee-jerk reaction…the decisions may have been taken due to heavy losses incurred by members and clients in castor futures," said Narinder Wadhwa, president of the Commodity Participants Association of India.  End


Edited by Arshad Hussain


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