SEBI, the commodity and stock market regulator, has cracked down on Rapeseed-Mustard trading on the NCDEX by prohibiting new positions in the contract beginning Friday. This follows the regulator's two-month prohibition on new positions in chana (gram).
Only squaring of existing positions would be permitted in these contracts, according to a circular issued by both the exchange and SEBI without elaborating on the basis for the prohibition.
SEBI has also prohibited the introduction of new rapeseed/mustard futures and options contracts till further notice. According to one analyst, the negative action will further drain the exchange's liquidity.
Since reaching a fresh high in April, the average daily turnover on the exchange has been declining. It has fallen 55% from a peak of 2,907 crore in April to 1,876 crore in September.
NCDEX trades five monthly rapeseed/mustard contracts that expire in February 2022. The level of open interest in these contracts has likewise been high.
With futures trading on the exchange quickly becoming the standard for spot markets, the government aims to limit the spike in agricultural commodity prices caused by speculative trades on the exchange platform, especially with inflation on the rise, according to analysts.
As a preventive move to avoid a rapid surge in prices, the regulator prohibited the launch of a new futures contract in chana in August. As a result, the average daily turnover on the exchange fell to Rs.1,876 crore in September, down from Rs.2,443 cror in August
According to Narinder Wadhwa, President of the Commodity Participants Association of India, if SEBI continues its policy of abruptly prohibiting contracts, the exchange's turnover would suffer, and it will be difficult to reintroduce hedgers or traders into the ecosystem once trust is lost.
