By Dilip Kumar Jha / Mumbai Jan 04, 2012, 00:03
Suspecting price manipulation, the regulator plans to issue showcause notices to leading traders this week.
To nab the culprits involved in price rigging of guar gum and guar seed, the Forward Markets Commission (FMC) is planning to issue ‘showcause notice’ to many leading traders in Rajasthan. The notices will be served to them by Friday.
The commodity derivatives regulator is awaiting reports to be submitted by various teams sent out separately by both FMC and the National Commodity & Derivatives Exchange (NCDEX) to examine books of traders’ account two weeks ago. Teams were sent in co-ordination with each other to avoid duplication and needless delay in action.
“Both NCDEX and FMC teams were back last week. But, they are yet to submit even preliminary reports, which are expected in a day or two. On receiving the initial findings, we will issue show cause notices to the price manipulator, if any,” said a senior FMC official.
But, notices would be issued by Friday at the earliest to send a right signal to the market, said the official. FMC had launched
investigation suspecting manipulation as guar gum and seed prices have risen sharply from April, up over 150 per cent.
Categorised under narrow commodity with a limited potential for cultivation in a circumspect agro climatic environment, guar seed is produced largely in Rajasthan. The commodity is used purely for extracting its derivative guar gum for its use in a number of industrial applications.
An FMC investigating team member, however, is understood to have recovered some objectionable documents from a Jaipur-based trader. Another team also seized similar papers from a Jodhpur-based traders. Apparently, the funds used for trading in guar gum and guar seed through the trader’s account were not traceable.
According to the FMC official, these traders were also involved in frequent client code modifications (CCM).
FMC fears the possibility of margin funding in these cases where some industrialists and large traders transfer the money into the account of a small and unnoticeable person and trade commodities on his behalf. Traders manage to corner huge quantity of guar gum and seed through different account for price rigging in future while the person gets a small sum as margin for allowing use of his account for transferring the amount.
FMC also does not rule out the possibility of stock movement through illegal routes in this case which needs immediate attention. Possibility also looms large for the same transport moving through different warehouses “on paper only” in order to show the delivery of the goods.
Apparently, fundamentals remained strong favouring price rise in the two commodities sharing around 40 per cent of NCDEX’s daily average turnover. Against the total estimated output of 1.5 million tonnes last year, the crop size is forecast to remain at 1.25 million tonnes this year. With least carry over stock left from the last year to support the availability this year, the commodity is expected to remain in short supply this season.
India shared 97 per cent of the global demand through exports of 400,000 tonnes of guar gum. With an estimated exports of 500,000 tonnes, the total requirement of guar seed stands at a minimum 1.55 million tonnes. This means, the market is expected to remain in deficit of nearly 20 per cent.
During the investigation, the official found that genuine exports are hedging guar gum with producers at the future prevailing price in “forward contract” in order to get assured supply. Since, bilateral forward contract does not fall under the domain of FMC, the regulator cannot act on such assurances, the official said.
Meanwhile, both guar gum and guar seed contracts hit the upper circuit to set the lift time record on Tuesday. Guar gum for delivery in March closed with a gain of 4 per cent at Rs 25,490 ($479.86, €368.73, £307.92) a quintal while guar seed contract for delivery in April ended the day at Rs 7,740 ($145.71, €111.96, £93.50) a quintal. Guar gum price has risen by 42 per cent while guar seed shot up by over 32 per cent in a month.