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November 1: Fragile hopes have flowered. And the worst is over for the Indian Pepper and Spices Trade Association (Ipsta)-run first International Commodity Exchange, better known by the acronym Ipsta-Ice. But fears persist that it will turn out be a futile hope unless the central government and the exchange management get their acts together and do a lot more to promote the exchange.
For the first and only international pepper bourse in the world, which will complete one year of commencing commercial operation on November 17, the past 11 months were of trials and tribulations. Among the worries of the Ice, which had technically completed its first year of existence in October 17, include thin and random trade in international contracts and the non-participation of foreign players as well as a host of procedural hurdles and nebulous norms.
For starters, during the last 250-odd working days, the total trading days in Ice numbered a paltry 50. The liquidity has been thin and there have been few takers forthe concept. While the global pepper production was estimated to be around 1.4 lakh tonnes, the volume transacted in Ice was minuscule which is not worth quoting. The trade was confined only to Malabar pepper while trading in Lampoong, Sarawak and Brazilian pepper find no fancy in Ice. To top it all, Ipsta-Ice plans to commence dollar contracts have been hanging fire, following procedural delays. However, there are certain silver lines amidst the dark clouds. Last month Man-Production Rottardam BV, one of the world's largest commodity traders, had put in application to Ice management for joining as the first registered non-member of the exchange, kindling hopes about greater participation by the global players. A registered non-member can trade on the exchange by tying up with a full-time member of the bourse according to his choice.
The exchange management was also successful in solving another major roadblock by easing the delivery procedures. According to the new delivery system put in place byIpsta-Ice, an international player can chose between FOB-based delivery or designated warehouse route. Ice has designated warehouses in all the five major pepper-producing countries, besides Singapore.
Recently, the commerce ministry earmarked Rs 10 lakh to Ipsta for promoting and marketing International Commodity Exchange abroad. The recent government notification that instead of the weekly income tax clearances and prior permission from the Reserve Bank, the foreign players now require only annual clearances for profit repatriation has come as a shot in arm for the nascent commodity exchange.
However, Sanjay Mariwala, the newly-elected president of Ipsta, feels both the exchange management and the government have to do a lot more to help Ice take off. As a first step, Ice needs aggressive and systematic marketing to get buyers and sellers around the world attracted in the concepts of hedging and futures. He said the Government should also speed up clearances such as dollar-denominated trade which arelong overdue.
He also thinks that Ipsta-Ice has to play an "enabling role to bring together potential users all around with the members and composite clearing members. This would help clear doubts and bring more business".
Major road blocks for the Ipsta-Ice to take off include some "procedural issues which still remain unclear and require urgent steps from the Government. For example, clarifications towards income tax on profit/loss made in Ice and repatriation of profits. Norms pertaining to these fundamentals are still unclear and should be made transparent by the Government".
He said the fortunes of Ice would change when the liquidity and volume improve. "Today, the domestic domestic division of Ipsta trades approximately 500 tonnes of pepper per day. We need to set such target at least to start with for the Ice also. Some momentum to this extend only will build confidence in Ice and fuel its future growth", he said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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