Commodity exchanges need more risk management tools at the client level: Samir Shah, CEO, NCDEX

Capital markets regulator Sebi has barred Ruchi Soya and another entity from the securities market for alleged cartelisation to influence the price of castor futures on NCDEX. Samir Shah, CEO, NCDEX, tells Ram Sahgal that market confidence would only get stronger after this episode. Excerpts:

Do you think the Sebi bar on Ruchi Soya from participating in the markets will dent investor confidence on NCDEX, result in a fall in participation and consequently affect the exchange’s financials?
The Exchange welcomes the action taken by Sebi against entities trying to manipulate the market. They confirm our own findings on the matter. NCDEX is confident that stringent action against manipulators would only increase confidence of the participants in the commodity derivatives market. We are sure that the market participants will repose more confidence in NCDEX as India’s most liquid platform for agricultural commodities.

Is it possible to pre-empt cartelisation, as observed in castor counter, on the bourse?
The Sebi order clearly documents the sophistication of the methods used by market manipulators. Commodity exchanges will have to be further empowered with the appropriate surveillance, risk management and investigation tools at a client level to prevent such market abuse.

Do you think the risk department at NCDEX has failed in its discharge of duty, given the castor fallout?
There was no dereliction of duty by our Risk Department. The incident occurred on account of deliberate violation of extant regulatory and trading guidelines by some entities. These entities used sophisticated methods to mask market activities about which a commodity exchange would not normally have information. The suspension of castor seed contracts, though unfortunate, helped protect market integrity and maintain market equilibrium. Furthermore, the subsequent action by the Exchange to strengthen surveillance and risk management and its commitment to address investor grievances by effecting close-out has been well appreciated by market participants.