NCDEX is ready to pay Rs 120 per quintal to compensate the castor seeds traders.
The Securities and Exchange Board of India (Sebi) has forced National Commodity Derivative Exchange (NCDEX), which suddenly suspended castor seed contracts on January 27, to compensate all traders who hedged their positions in castor seed on the exchange platform.
NCDEX is ready to pay Rs 120 per quintal as compensation to them.
Senior Sebi officials told dna that they are also examining the role of NCDEX's senior management.
The commodity derivative exchange considered a period of 23 days between January 28 and February 19 to sell the stocks in the physical market and calculated spot price of Rs 3,009 per quintal. It calculated a difference of Rs 120 in spot price after deducting operational expenses like warehouses rent, transportation charges and incidental and settlement prices on January 27, the day when the castor seed contracts were abruptly suspended.
A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
Market sources said this is the first time that Sebi, which recently got the commodity market under its jurisdiction, managed to step in effectively. This, they say, is the first time in the history of commodity market that an exchange is ready to compensate hedgers who lost money in sudden suspension.
In a circular, the exchange has clearly mentioned that "net short positions in the castor seed contracts on the exchange platform as on January 27 and also held valid deliverable stocks as on January 27, in exchange approved warehouses shall be eligible to make claims".
Brokers are happy with the move by NCDEX.
Ajay Kedia, managing director of Kedia Commodities, told dna, "We welcome this step and we are experiencing Sebi's effect in the commodity market.This decision will improve the image of agri commodity in the world which is on the decline in the last few years in the global market."
Girish Dev, CEO of Geofin Comtrade, said the decision would definitely improve confidence of market participants in the commodity market.
Sources said the senior management of the exchange is still under the scanner of the regulator. A senior Sebi official told dna, "We are evaluating every aspect in castor seed case. Sudden suspension of any commodity leads to anxiety in the market which we will have to resolve. We are also examining the role of senior management of the exchange in this matter. Along with this, we are trying to restore the confidence of commodity market participants in agri commodities which was shaken up in the last few years."
NCDEX suspended castor seed trading on January 27 due to some members being unable to meet margin obligations. According to market estimates, the outstanding position in castor seeds on NCDEX was worth around Rs 1,500 crore.
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 "NCDEX is ready to pay Rs 120 per quintal to compensate the castor seeds traders.")
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