FMC tells oldest cotton bourse to close

Surendranagar Cotton Exchange renewal proposal rejected due to failure to match mandatory recognition rules; its officials say they're trying for a change of mind

Citing failure to match the mandatory recognition rules, the Forward Markets Commission (FMC), regulatory authority for the commodity futures market, has decided on an ending of operations at one of the oldest and only offline cotton exchange in the country — the Surendranagar Cotton Oil and Oilseeds Association Ltd, also known as the Surendranagar Cotton Exchange.

FMC had told it on April 27 that due to it not getting any action plan for demutualisation and online trading, and also on the ground that there had been no progress on the exchange’s plan for a tie-up with National Commodity and Derivatives Exchange (NCDEX), the latter’s proposal for renewal of recognition, which had lapsed on March 31, 2014, was not being considered for renewal.

When asked, an official of the exchange said FMC had not informed them of the decision. “Earlier, FMC had asked us to start online trading and we were ready for it. We had held talks with NCDEX to join as a trading member. However, FMC did not inform us about their recent decision and uploaded the circular on the website. This is an unexpected decision,” said A P Zala, secretary, Surendranagar Cotton Exchange.

Since March 31, 2014, FMC had not given permission to start new contracts at the exchange. There are only two offline cotton contract exchanges in the world - this one and another in Chicago, USA.

“We will approach FMC with a fresh proposal for merger and online options to obtain renewal soon,” said Zala.

“The exchange is evaluating the proposal and is in discussions in the matter,” said an NCDEX official.

The journey of Surendranagar Cotton Exchange has been shaky since its started. It was started by some traders of Surendranagar and Wadhwan for cotton, cotton oil, silver and ghee (clarified butter) in 1939. Gradually, other forward contracts were closed down and only the kalian cotton (V-797 and G12) contract was running till date.

It was officially recognised in 1964 but in 1971, the Union government banned all such exchanges in India.

After that, for about 30 years, cotton contracts were being run illegally on the exchange. In 2002, the exchange again started futures contracts, legally. An annual volume of about Rs 25,000 crore was registered over the next seven years.

Then, in 2009, the volume declined to Rs 3,000 crore after a duty issue with the state government. In 2013-14, the volume was Rs 12,000 crore.

Y B Rana, president of the exchange, said: “We have so far worked as a non-profit organisation and it is not possible for us to go online immediately because of high cost.” To go online, the exchange requires from Rs 70 lakh to 1 crore. It currently has Rs 1.5 crore in hand. The total asset value is nearly Rs 14 crore, including the building and two shops.