How SEBI has pulled ‘Cotton’ over its eyes on MCX matters

As investigations into data theft by IGIDR professor Susan Thomas and Ajay Shah gang members put on slow burner; Cotton trading scandal raises its head at Multi-Commodities Exchange (MCX).

How SEBI has pulled ‘Cotton’ over its eyes on MCX matters
How SEBI has pulled ‘Cotton’ over its eyes on MCX matters

Louis Dreyfus Company has sent a response to our post and is reproduced below:

Response from the Louis Dreyfus (LD) by PGurus on Scribd

The Securities Exchange Board of India (SEBI)’s silence on illegal data-sharing scandal and grave corporate governance issues at MCX is turning out to be a hallmark of its inefficiency even as new revelations keep tumbling out of the closet in the matter.

The regulator under chairman Ajay Tyagi and key whole-time member Santosh Kumar Mohanty, who was close to former Forward Market Commission chairman Ramesh Abhishek Agarwal and now looks mainly at MCX as part of his work portfolio, have turned a blind eye towards characters involving Indira Gandhi Institute of Development Research (IGIDR) Professor Susan Thomas and network of Ajay Shah in the theft of data at MCX. Thomas is the wife of Shah, who was the blue-eyed boy of Palaniappan Chidambaram and both together are known to have milked key trading data both at the National Stock Exchange (NSE) and MCX, the largest bourses. The merger talks between the two exchanges, which are currently being kept under the wraps, too have deep ramifications.

The Whistleblower has pointed out that a former MCX official, who has now joined a commodity fund by investing his own capital in it, had met a large foreign broker trading on MCX in Europe and got into an understanding to re-route his wealth into India

SEBI’s inaction against Thomas and role of others in data scandal despite glaring and unavoidable evidence, has emboldened officials at MCX further who are now trying to suppress yet another major mess brewing at the exchange involving Cotton trading. A Whistleblower has complained to SEBI via a letter on August 9 as to how large quantities of sub-standard and wet cotton bales were being passed on by the exchange to its trading members. The letter was addressed to SEBI chairman was also marked to SEBI’s chief vigilance officer Arti Chhabria and other finance ministry officials.

Media reports show that MCX has received complaints with regard to the quality of cotton bales lying at its warehouse and traders are reluctant to take delivery. As market players came to know that large quantity of cotton bales at MCX warehouse was of lower quality than specified in the contract, the price of spot cotton bales in the market was quoted at a higher rate than futures contract a few weeks ago. It will be interesting to investigate as to how these poor quality cotton bales made their way into MCX linked warehouse. The Whistleblower has pointed out that a key former and currently serving MCX officials were in connivance with Louis Dreyfus (LD), which is a Switzerland based company trading in India, and Glencore Agriculture. Trading data at MCX shows that LD got out of its cotton positions early during the year and did not take any delivery. The trader who bought the cotton bales from LD complained to MCX about the poor quality is now in a fix as the quality of the goods could be below MCX contract specifications.

It is learned that officials at MCX are now going behind the trader who had complained to them about the poor quality of bales and are accusing him of market manipulation and planning to blacklist him. The trader in question is said to have paid between Rs.200-Rs.250 crores for delivery of cotton and is now stuck between the devil and the deep sea while SEBI watches from a distance.

The Whistleblower has pointed out that a former MCX official, who has now joined a commodity fund by investing his own capital in it, had met a large foreign broker trading on MCX in Europe and got into an understanding to re-route his wealth into India. Are all these transactions inter-connected with bribes or money generated in MCX data scandal, which the SEBI is so reluctant to look into? Who benefits the most from SEBI’s silence and its lenient stand against key conspirators in data scandal and now giving a free hand to MCX in covering up the cotton trading mess? What quantity of poor-quality cotton came into MCX warehouses and how?

The Whistleblower pointed out that a contract worth Rs.20 crores was given by MCX to a Europe based company for developing trading software. This contract was later changed and its value increased multi-fold under the guise of additional requirements. Who in MCX changed this contract? Has the software been delivered by the European company on time to MCX?

PGurus has learnt that MCX was struggling with the settlement of Gold contracts in the last month as the price of the yellow metal rose sharply[1]. The Whistleblower in his letter states that MMTC-PAMP was to deliver 4000 kg. of Gold, something which has never happened on the MCX platform earlier. Few MCX officials panicked as there was no adequate risk cover for this and bullion vaults refused to toe the line. Phone calls went to bullion traders and brokers forcing counterparty to square-off their positions

Reference:
[1] It’s a delivery dilemma for MCX, with cotton and goldAug 12, 2019, The Hindu Business Line

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