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NCDEX platforms apply surveillance alerts at PAN level

As India’s leading online Exchange, NCDEX brings buyers and sellers together through its electronic trading platform and offers benchmark products across agriculture commodities. Some of NCDEX’s key investors include National Stock Exchange of India, Life Insurance Corporation of India, National Bank for Agriculture and Rural Development, Indian Farmers Fertilizer Cooperative, Oman India Joint Investment Fund, Punjab National Bank, Canara Bank, Build India Capital Advisors and Investcorp Private Equity Fund I. NCDEX also has a subsidiary, the National Commodity Clearing Limited (NCCL).

Real Time Monitoring

NCDEX has a real time monitoring system – the Millennium Surveillance System (MSS), which is a feature product of London Stock Exchange group. Avinash Mohan, EVP & Head, Surveillance & Investigation at NCDEX, explains its features: “The MSS is an advanced market surveillance platform, equipped to manage ever growing message traffic, adapt to new trading technologies and supports cross-market and cross-product monitoring. The surveillance systems handle functionalities, which include live trade and order data, graphical display and tracking of trades and orders, new pattern recognized alerts, user friendly front-end dashboards/ reports, alert manager and market replay.”

Risk Management System

NCCL has a risk management system (RMS), with a set of primary functions. Avinash shares its utilities: “This is with regard to managing the margins based on the parameters set by the Clearing Corporation and factor in the volatility prevailing in the market; and to maintain the positions of members and clients. This is also to provide alerts to members, whenever the positions of the members and respective clients are approaching position limits, notified for the specific commodity. The RMS also provides for mark to market the portfolio of the respective clearing members and ensure that the portfolio value does not exceed the available collateral of the clearing member.”

Software: AML Alerts

NCDEX and NCCL also use a host of software for monitoring market activity. Says Avinash: “These are providing alerts to members, capturing anti-money laundering (AML) related alerts and many more. Additionally, the exchange also uses state-of-the-art third-party as well as in-house developed software to facilitate other activities and better monitor markets. The systems are hosted in the primary data center in Mumbai and a corresponding DR set up in Chennai.

Lean Period Margins

Event-based additional margin was introduced in 2019-20 to safeguard the market participants from increased volatility in narrow commodities. Avinash points out that in the past one year, NCDEX along with the regulator, has undertaken a holistic review of margin framework, which included prescribing minimum initial margins, based on the historical volatility of the commodity and introduced lean period margins.

Safeguarding Volatility

Market regulation constantly evolves taking into consideration the changing dynamics and studying best practices from other ecosystems. Exchanges work in close coordination with each other and the regulator to constantly build safeguards for the betterment of the market as a whole and individual investor as well. Avinash cites specifics: “For example, the new margin framework is an outcome of various discussions with the regulator as well as the trading members, with a view to build adequate safeguards from heightened market volatility.”

Checks On PAN Number

The asset class predominantly traded on NCDEX is agricultural derivatives. One key characteristic of agricultural derivatives is that it is produced once a year and the consumption occurs across the year. Thus, the availability is limited and depleting as the year progresses. “Taking this into consideration, our exchange determines position limits for each constituent, based on the availability of the commodity in the ecosystem. Client level ‘Position Limits’ are monitored at a PAN level. Further, the trading system has self-trade prevention check which is applicable at PAN level across all it segments,” elaborates Avinash.

Surveillance Alerts

Policies and measures are developed at a macro level for the entire market. The Exchange then sends alerts to the members to facilitate better compliance. Avinash explains: “For example, in case of position limits, the Exchange sends alerts to members when the position of the member or any of its associated clients is approaching the position limit for a said commodity. Likewise, if the portfolio value of a member is close to the available collateral with the Clearing Corporation, the member is sent alerts. These alerts facilitate better compliance on the member’s side. To facilitate effective surveillance at member’s level, we are also providing surveillance alerts to our trading members.”

NCDEX keeps on revisiting the processes and the technology landscape. Avinash says it takes necessary steps to enhance customer experience and consolidate/split applications. It has also embarked on the journey of embracing cloud technology.

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