Of the total LME contracts transacted, hardly five per cent of these result in deliveries, while majority contracts are bought or sold back before due date.Warehouse receipts, issued by licensed warehouses, are both trading andfinancing instruments which help raise finance to the holders of these instruments.The WR even ensures the buyer of getting the same traded quality of the commodity purchased through a member of a recognised commodity exchange.These WRs even help bulk commodity holders or producers like the Food Corporation of India (FCI), Steel Authority of India and the like to effectively manage their stocks (buffer or otherwise) and raise institutional finance against these receipts.

The BOOE has made provision for WR system in its byelaws primarily to ensure both, the international and local buyers of the castoroil from the trading members of the BOOE.Under clause 7.11 of the proposed byelaws, the members will have to provide evidence of stocks in their possession so as not to default on their commitments made earlier. According to the provision, at the time of issuing the delivery order, the clearing member must satisfy the Prime Commodities Clearing Corporation of India (PCCCI), the clearing entity for the BOOE thatthe member holds stocks of the quantity and grade specified in the delivery order at the declared delivery centre.Each delivery order shall be accompanied by a certificate from an approved surveyor as the physical verification and certification of quantity of stocks in possession of tenderer at designated delivery centre and quality specifications of the grade being tendered. Such certification shall be dated and issued on the basis of inspection carried out not more than 15 days preceeding the date of the delivery order.Further, according to BOOE, in case of delivery of castor oil commercial by the seller against tender from his own or private storage tank, that particular tank shall be sealed at both the inlet and outlet valves by the aproved surveyor, certifying quality and weight. However, if the seller opts to give delivery of castor oil first special grade from an approved tank terminal at Kandla, Mumbai/ Navi Mumbai then the WRs duly issued and certified by the approved tank terminal and surveyorsrespectively shall accompany alongwith delivery order certifying quality and weight.Earlier this month, the two representatives of the United Conference of Trade and Development (UNCTAD) and the World Bank met the representatives of the eight comexes at the FMC's office and highlighted the need for making WRs tradeable on the Indian comexes.The importance of WR will become more prominent when the proposed Federation of Indian Commodity Exchange (FICE) takes shape. The decision to form the FICE was taken at the same meeting.

East India Cotton Exchange Association (EICA) president Suresh Kotak has been selected as FICE's convenor.The first meeting of FICE members is expected to be held in Mumbai next month at the EICA's cotton exchange premises in central Mumbai after the members of the respective comexes give their formal nod to join the proposed FICE. Soon after the meeting with the FMC and the representatives of WB and UNCTAD, the BOOE members have cleared the BOOE's entry to FICE.The BOOE presidentNavinchandra Shah has been appointed convenor of a national semiar to be held in Mumbai on `Warehouse Receipt Trade and Finance'. The workshop will be held sometime in mid-June this year.In addition to the trading members, a warehouse receipt system enables even the farmers to hold their stock of commodity from the market, while simultaneously allowing them to access working capital against the value of the commodity stored in the recognised storage place. Instead of selling the commodity directly in the market, the farmer (or producer) can extend his potential sale period by depositing these in a lisenced warehouse which issues the receipt.Issued by the licenced warehouse, the warehouse receipt is either retained by the producer (including farmers) or assigned/transferred to a lender in return for a percentage of the value of the commodity -- a loan to be repaid within a time frame.

Lenders record their security interest with the licensed warehouse, so that if the borrower (farmer or trader or producer)defaults, they can directly claim the commodity from the warehouse operator and sell the commodity to liquidate the loan. A negotiable receipt also gives lenders the opportunity to trade in the warehouse receipt on a secondary market and refinance their loans.