The South India Cotton Association (SICA), one of the strong voices advocating futures trading in cotton, is fully geared up to meet the challenges if the union ministry of consumer affairs gives the green signal, senior sources in cotton trade and industry said in Coimbatore.``We are of the view that all centres willing to start trading in futures should be given permission. Our response will be positive if the government grants permission,'' said a senior member of the 580-member strong association. He, however, ruled out any indication from the government inviting the association to start futures.
Some cotton traders, when contacted, said the government should invite SICA following the East India Cotton Association's (EICA) delay in commencing futures trading. EICA is expected to start futures trading in cotton on July 17.
In fact, SICA had prepared a set of draft bye-laws specifically for futures trading way back in July 1997 when the Cabinet Committee on Economic Affairs (CCEA) had approvedresumption of futures trading in the commodity (ginned and bales) as recommended by the Kabra Committee. The premier association representing the cotton trade in the south had also set about revamping its infrastructure. The association had formed an expert committee to deliberate on the bye-laws.
The Forward Markets Commission (FMC) had commended the association (along with EICA) for its preparedness. FMC had in September '97 carried out a round of inspection of SICA.
On the technical side, SICA had identified an expert in derivatives and futures trading ``who was committed to put the system on track in record time''. ``Following the delay in getting the permission we have decided to keep his appointment pending,'' a SICA source said.
The infrastructure identified by the association included financial strength, systematic administration, effective operating bye-laws and availability of trading hall and communication facilities. SICA has a trading hall on its own premises.
A cotton trader close toSICA circles admitted that the association could take off with ``hi-tech infrastructure'' within six months from the date it gets the government nod. The association, it is learnt, is toying with the idea of creating a wide area network (WAN) and may even have a tie-up with the Coimbatore Stock Exchange (CSX).
However, the senior SICA source dismissed any such proposal. ``On the operations part we have not held talks for tie-ups with any body. Let the permission come first. Mostly we are going to be on our own. But we will explore all other possibilities,'' he said. The futures exchange, the trading community here claim, should be ideally located in Coimbatore as around 65 per cent of the cotton produced in the country is consumed in the south and mills located in the south contribute 80 per cent to the total yarn exports from the country. ``Mumbai has the financial muscle, but traders and brokers in Coimbatore outnumber those in Mumbai. We have around 1,500 brokers, 300 registered, and 250 traders,'' theysaid.
The draft bye-laws framed by the nearly two-decade-old SICA was aimed at providing transparency, price generation and liquidity. It is expected to cover among other things the following:
The rights and obligations of members. Number and types of contracts in futures market. An index to be evolved for the market. Lot size, frequency of clearing and procedure for imposition of margins. Constitution of a vigilance committee.SICA had conducted awareness programmes among its members as soon as the ball was set rolling for the commencement of futures exchange for cotton in 1996. It even commenced spot trading in cotton in '95.
However, some sources expressing concern over the delay said even if the permission comes in SICA would think twice commencing it in six months. By the time it commences the new cotton season, which starts by October, would have ended. Moreover, the present market conditions do not seem to be favourable as most of the cotton mills reel under severefinancial crisis.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
