Jute exchange plan faces failure

The 51st annual general meeting of one of the oldest commodity exchanges of the country, the East India Jute & Hessian Exchange (EIJHE) ended on a sad note, as efforts to revive the age-old institutions appeared to have failed.

According to Arun Kumar Seth, the president of the exchange, the activities of the exchange was crippled with factors like "deceleration in trading and overall inertia of non-involvement from all the corners".

The exchange could not convert its trading platform to an on-line system and also failed to conduct futures and forward trading in jute, he said.

"The parameters of futures trading have undergone changes, and those changes are making trading conducive towards economies of scale and a single commodity exchange with sectored participation is inevitably susceptible to low-volume syndrome," said Seth. Futures trading in EIJHE dried up in the last five months with only a handful of contracts being traded now.

In 2004, MCX (Multi Commodity Exchange) and NCDEX (National Commodity and Derivate Exchange) started trading in raw jute and this led to an exodus of traders from EIJHE.

The number of ring members fell from about 80 to eight now. Between 1952 and 2004, EIJHE was the sole operator of organised trading in jute, though futures trading was banned between 1963 and 1993.

Over this period, the exchange thrived on forward trading contracts. In 1997, hedging in jute sacking helped the exchange boom. However, problems surfaced in 1999.

Trading was suspended in February 1999 and restored in August. This was followed by a phase of price volatility, with ring members, mostly backed by rival jute mill owners, forming cartels.

The 2003 November delivery sounded the death knell of the exchange as some members complained to FMC about an alleged "takeover bid". Consequently, FMC suspended trading on the exchange after the February delivery.

However, in 2004, the Cabinet Committee on Economic Affairs (CCEA) granted permission for futures trading in several commodities, including raw jute. EIJHE started raw jute trading in 2006, but by then, other exchanges had gained an edge.