Cotton Futures Deals In For Change

Cotton futures, when re-introduced at the Indian markets, will for the first time see the contracts being based on specific characteristics rather than merely the cotton variety. Futures during the 1950s and 1960s used to be based on the cotton varieties like J-34, H4.

The East India Cotton Association (EICA), the body which has been designated to commence cotton futures trading at the markets, is expected to finalise their draft bye-laws shortly. The EICA board is expected to present their full proposal with the amended bye-laws to the Forward Markets Commission and the Food and Consumer Affairs ministry by June 10, sources said.

 

Sources said the trading contract would be linked to specifications like staple length, moisture content, strength, thrash content. Further, it has also been decided to make the tenderable varieties with the same specifications as the basis variety, and would not be the most superior or inferior type. These broad parameters have been worked out by the EICA board.

The move to delink futures trading from the cotton variety is practised across other international exchanges. EICA officials had undertaken a detailed study of the US-based cotton futures exchanges.

The EICA board has also decided to move to a daily settlement programme in their move to modernise trading and reporting practices. The exchange, over the years, has followed the practice of weekly settlement of trades. It will also streamline its internal reporting system, and is expected to go computerised shortly. This would mean that the reporting of trades back to the exchange and the overall processing of data will be computerised. The contract for the software/hardware programme will be finalised shortly, sources at the exchange said.

EICA will continue to have an in-house clearing mechanism and currently there is no move to have a separate clearing corporation for the exchange. "This will be undertaken in a phased manner,'' a source said.

The FMC chairman, V K Aggarwal, when contacted, said, "We have asked them to specially keep in mind the changed market scenario over the past two decades. They must come out with a proposal which is completely different from that practised in the past."

The regulator for futures trading in commodities is expected to take at least five-six weeks to scrutinise and clear the draft proposal, sources said. Following the amendments, the regulator will set out the rules and regulations for cotton futures.