The board is set to meet to approve the suggested changes this week after which it will be forwarded for the approval of FMC. FMC had asked to introduce daily settlement for the trades as well as changes in the additional deposits and fee structure for various memberships of the exchange. The actual implementation of futures trading in cotton will take place after about 15 months of the announcement of permission by the then finance minister P Chidambaram in his budget speech during the regime of United Front government.

The futures trading in cotton which has a history since 1920 is being reintroduced after a gap of almost 40 years when it was banned along with futures trading in other commodities in a bid to curb speculation andstabilise prices.

Presently forward and spot trading in cotton is allowed under Non-tansferable Specific delivery (NTSD) and ready delivery contract respectively at nine places in the country.

Under NTSD mechanism the contract has to compulsorily result into delivery within six months of the contract. Thus this proves to be an inadequate tool of risk management for a high risk trade that depends on the vagaries of nature. Ready delivery contract is a contract where delivery and full payment have to be affected within 11 days from the date of entering into the contract.There are places like Surendranagar in the country that hold illegal futures trading in raw cotton which is popularly termed as Kapas Kabalo due to the inefficient mechanism of hedging risk.

The associations allowed to operate NTSD contracts at Ahmedabad,Bhatinda, Guntur, Indore ,Mumbai, Surat, Ujjain and Vadodara have to seek prior clearance from FMC.