For traders in Gujarat, Punjab, Haryana, Madhya Pradesh and other adjoining states it has been a long and futile wait. The Mumbai-based East India Cotton Association (EICA) had in July this year, submitted its proposal to start futures trading in cotton. The proposal is yet to be cleared by the FMC.

The illegal cotton futures trading, known as `kapas', will continue to be in operation till December 31, when the first part of the contract expires. This means that trading without delivery and settlement of price by either paying or receiving price difference at the time of delivery would go on till the end of December.

However, from January 1, 1999, the contract's second part will come into effect with new terms being finalised by a committee of traders. Inthe second part one can make or take delivery, or even issue a tender.

Despite it being illegal, trading in kapas is said to be on the rise over the years with operators from the north becoming active in it. Kapas is perhaps the most widely used parallel futures trade in the country.

A committee of some 10 top cotton traders in these regions, said to be the supervisory body of kapas futures, had this year fixed the benchmark price at Rs 380 per 20 kg. This benchmark price is for the short staple Kalyan cotton. The contract size (or one trading unit) is for a minimum 200 maunds (4,000 kg), which at the given benchmark price equals Rs 76,000. Last year, this benchmark price was Rs 365 (for 20 kg) with a high of Rs 405 which dipped to 351 before finally closing at Rs 400.

A price-swing of Rs 50 is allowed, giving the upper limit (price sealing) of Rs 430, while the lower limit will be Rs 330.

Though players from across the country participate in kapas, one can take positions only through brokers basedin Surendranagar. Currently, there are some 50 kapas brokers. Membership for this illegal cotton futures is restricted to residents of Surendranagar. New players who want to become brokers, have to purchase membership from existing members, as the informal but closed club does not issue fresh memberships which are said to cost Rs 2 lakh. Upcountry players take positions through sub-brokers associated with brokers in Surendranagar.

Positions can be taken with open order or limit order. For better speculation or risk management, positions can be taken with derivatives called jota and fatak. So far a trading lot is 200 maunds and prices are quoted in terms of maund, every move of Re 1 stands to gain or lose Rs 200 a lot. Usually there are two clearing a week on Wednesdays and Saturdays, However if the price moves beyond Rs 3 in a single session, the committee declares a special clearing. Official time of trading is 11 AM to 4.30 PM, however kerb deals are on till 10 PM some time.

All transactions are in cashand there are no documents except for a small piece of paper. Outsiders use `Angadiya', to send or receive money called `valan', said a broker. Small traders from remote areas of Gujarat like Bhuj or Junagarh can positions via a bucket shop. It is called `dabba', a miniature form of exchange.

Kapas has been in operation for many years and covers other commodities like cotton seed, cotton bales etc. The daily traded volume in kapas is roughly 1,000 trucks in local terms. However, actual open interest is impossible to trace, as it is an over-the-counter market. "At present other parallel futures like edible oils, cotton cake are closed so kapas has every chance of becoming number one," boasts a broker.