Last Thursday, the FMC gave its much-awaited clearance for the ICC to be traded in the country. Backed by the clearance, the cotton trading at the East India Cotton Association (EICA) will once again buzz with activity after three decades. The government had suspended cotton futures in August 1966.

Accordingly, trading in ICC will commence from October 15. Formal trading in ICC is likely to be flagged off by the ministry of food and civil supplies secretary, NN Mukerjee. In order to prepare themselves for this, the EICA members had already conducted mock trading sessions on September 30. The mock trading will resume from Monday.

Surprisingly, the formal beginning of cotton futures from October 15 is most likely to be conducted in absence of EICA's president Suresh Kotak, whois on a fortnight's overseas tour. "Given the importance of commodity trading the government attaches, it was keen to see the trading in cotton futures commence at the earliest," said a cotton trade source. "The government wants to commence trading in cotton futures even in the absence of EICA president."It may be mentioned here that the Reserve Bank of India had on September 28, released the first set of guidelines for commodity hedging in international commodity exchanges. According to Kotak, the revised set of byelaws and terms of contract hopefully would be suitable for the cotton trade and industry alike. Asked whether the trade and industry would take advantage of the recent permission to hedge commodity positions in the international markets, Kotak said: It remains to be seen how many corporates take advantage of the facility. However, it is too premature to say anything.

The cotton futures will be conducted at EICA's building at Cottongreen (central Mumbai), EICA plans to shift all its currentactivities from its current office at Cotton Exchange (South Mumbai) and centralise its base at Cottongreen.

The FMC had rejected in July the first draft of bye-laws and set of regulations submitted by the EICA for the proposed futures trading on its exchange. EICA had once again submitted a revised draft to the FMC last month. The FMC cleared the latest draft regulations last Thursday.The cotton futures in ICC will be on the following lines: After the expiry of December 1998 contract, EICA will have to approach the FMC for the commencement of yet another contract -- June 1999 delivery.

Each member will be allowed to trade only in four units of 55 bales each (one bale of 170 kg). However, the maximum limit for an institutional member will be 600 units, that of clearing member 400 units, composite trading member 200 units and clearing -cum-trading member 50 units. This means, even when each contract will be of four units, the open position or further exposure will have to be through separate contracts offour units each.This split of a contract in mall units is to facilitate small members, EICA sources say.

If at any time more than one deliveries are running concurrently the above limit shall apply to the combined open position of the member or the non-member as the case may be, in all such deliveries running concurrently.For the purpose of the FMC's order, the open position of a member shall be the total of the open position acquired by him by trading through or with other members.

Trading in ICC will stop if the price during trading hours crosses 35 per cent (either way, that is up or down) of the bench mark. The benchmark price will be rounded to the nearest rupee of the average of the opening, highest, lowest and closing prices of the first five days of the three contracts permitted. Thus even if trading starts for December 1998 and February 1999 contracts on the same day, the benchmark price for the both the contracts would be separately worked out and are likely to be different. There will bespecial margin payable on both purchase and sales, if prices fluctuate between five and 30 per cent. The margins payable will be -- five per cent if prices are more (or less) than 15 per cent than the benchmark; 10 per cent if prices are 20 per cent (higher or lower) then the bench mark and 15 per cent if prices are 30 per cent (higher or lower) than the benchmark.