MUMBAI: The Securities and Exchange Board of India (SEBI) could initiate action against top commodity brokers and their clients for allegedly violating position limits in the guar futures complex guarseed and guargum, a derivative of the former used in oil well drilling more than six years ago.NCDEX, which specialises in agri futures trading, has issued show-cause notices (SCNs) to over a dozen brokers, including Kotak Commodities, Anand Rathi Commodities, Reliance Commodities, Karvy Commodities and Bonanza Commodity for allegedly violating position limits in 2011-12, said a person aware of the development.Investigations have revealed that a few clients had allegedly taken extra positions through some of the 12 brokers and cornered the guarseed counter.
Sebi asked the stock exchange to club all of these clients positions and impose a penalty, the person said.The exchange had issued notices to several clients but after they challenged its jurisdiction over them, the notices were withdrawn.
It was contested that brokers were members of exchanges but clients were not, hence the exchange couldnt proceed against them.
Now, Sebi will initiate action against clients, sources said.After the government merged then commodity futures market regulator Forward Market Commission (FMC) with Sebi in September 2015, the combined regulator was given three years to clear all the pending issues at the erstwhile FMC.
The investigation in the old, guar case was one such issue that had to be closed by Sebi.In response to an ET query, an Anand Rathi spokesperson confirmed having received the show cause notice from NCDEX.
We are currently examining it and will respond accordingly after consultation with our lawyers,Kotak Commodities executive director Shripal Shah could not be contacted.
Queries to Reliance Commodities and Karvy Commodities went unanswered while SK Goel, director of Bonanza Portfolio, said that since he was travelling he couldnt immediately ascertain having received any SCN.Vijay Kumar, MD, NCDEX, said that he couldnt comment on the matter given its sensitivity.Shortage of the guar seed crop by 20 per cent in 2011 coupled with a jump in crude oil prices raised speculative interest in the counter in early 2012.
Such was the frenzy that guarseed spiked to Rs 28,000 per quintal (100 kilos) in March 2012 from just Rs 9,000 levels in January.
That of guargum rose three times to Rs 90,000 levels over the same period.To rein in excessive speculation, FMC increased the margin to trade guar futures to 70 per cent and reduced client position limits by a fifth.
The alleged violation of position limits happened through persons acting in concert to corner the crop after these regulatory actions.Trading in guar futures was suspended in March 2012 through May 2013.
Being a narrow crop India produces around 10 lakh tonne of guarseed, of which Rajasthan accounts for 85 per cent, according to trade estimates guarseed and its derivative can be susceptible to cornering.Most brokers who received the show cause notices are likely to move the Securities Appellate Tribunal (SAT).