Sebi eases traders’ concerns over margin hike in castor futures

MUMBAI: Securities and Exchange Board of India (Sebi) has allayed the concerns of a group of farmers and spot market traders who complained that its decision to raise margins for buyers of castor futures had hit them with hefty losses for a day, a Sebi official told ET.


Commodity exchange NCDEX informed market participants on March 24 (Friday) after market hours that special cash margin on castor futures would be raised by 20% on longs (buyers). The group claimed that certain traders on the futures market had built short positions on that Friday itself following which prices fell in the spot market and caused them losses.

On March 27 (Monday) when the special margin kicked in the near month castor futures fell by 3.3% to `. 4,635 a quintal (100 kg). However, since then, prices have risen, hitting a contract high of `. 4,999 on April 4.

“We explained the rationale behind our decision to raise the margin and the group returned satisfied,“ the Sebi official said.

An NCDEX official said, “Special Cash Margin of 20% on the long side was imposed with effect from March 27, 2017, on all the running contracts and yet to be launched contracts in castor seed, as a regulatory directive in view of concerns arising out of volatility.“

Increasing the margin to trade reduces the leverage a participant can take. Industry officials said the concerns of falling production have lifted castor prices, necessitating an increase in margins to prevent over speculation.

“Output estimates of the crop (castor) peg production to be lower than last year by 25-26%, causing prices to rise,“ said Atul Chaturvedi, CEO, Adani Wilmar. “If prices rise that's good for the farmer.“ Chaturvedi said India produces around 1.5-1.6 million tonnes of castor in a normal year.Castor meal is used as an organic fertiliser in India and abroad.