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Surekha Sule
December 13: On December 5,1998, the futures trading in Indian cotton contract (ICC) resumed after it was banned in 1966. A short inaugural session attracted good response from the traders who concluded it on a bullish note. In a free-wheeling interview with The Financial Express, Suresh Kotak president of East India Cotton Association (EICA) discussed various issues related to the future of the futures cotton market.
Now that the futures trading in cotton has resumed after a gap of 32 years, what are your immediate concerns relating to this market?
My immediate concern would be to make it very usable for all sections of the market such as growers represented by the cooperative societies, the facilitators ie. marketmen, the processors such as ginners and the consumers, mainly textile mills.
Other users would be policy makers who will get the market trend as well as all textile related institution and interests will understand the trend from this price discovery instrument.
Thethird important user, in fact relatively new entrants would be the foreign institutional investors (FIIs). They will have two purposes - one to offer the instrument of structured finance for their clients and secondly to utilise some of them as an investment instrument also.
How will the price discovery through futures trading affect the spot prices of all varieties? Is there any empirical formula that the market players can easily apply to arrive at the spot rates for varieties above and below 26mm staple length?
The futures prices and the spot prices are two sides of the same coin. Both have some influence on each other that will give market an appropriate price or a proper value through the price system that will be useful point for the total health of the cotton economy. So the price behaviour will give a good amount of appropriate price level to the cotton system. No there are no empirical formulas.
Will the cotton exchange guarantee the performance of the contract? How would it beachieved?
The contract is so well structured and the bylaws are so meticulously detailed that it ensures the performance of the contract. It also ensures that the integrity of the transactions at the exchange and the credibility of the exchange will be well maintained. The system is so impeccable that we can take actions against the erring parties very much in time so that it will not have much threat. Of course any kind of emergencies can arise but more or less we have tried to take care of all the eventuality.
One of the objectives of any exchange is to attract wider participation in the futures market? In India major part of marketing chain does not participate in the futures trading.
As a result, price sensitive information fails to reach the market and price discovery function of the futures market gets adversely affected. What measures are you taking to attract increasing participation in the cotton futures trading? As of now, how many are participating?
Your question is very wellstructured and very vital. We have actually envisioned this point and we are already working on the dissemination part of this information in proper time-effective manner to various important centres and in Mumbai and to important institutions. I think within a short time this system is taking shape.
For wider participation we are working out on the networking which will be organised . This is engaging our attention fully. EICA might have sub-sector cells and will have connectivity for effective price-information transfer. Many suggestion have come and we want to give quick solution.
As suggested by NN Mookerjee, will you at the EICA be open to merge cotton exchange with other exchanges?
Actually, Mookerjee did not suggest mergers. What he suggested was the close cooperation with other exchanges, alliances of various kinds and partnerships of different exchanges for some common facilities. He also has in mind a kind of an organisation or institution like National Futures Association of Americawhich is a great helping hand to Chicago Futures Trading Commission which is equivalent to our Forward Market Commission.
As pointed out by NN Mookerjee in his inaugural speech, we do not have any professionalism in the management of our exchanges. How are you going to ensure expert management of the cotton exchange?
I would like to point out development in this respect that have taken place over last few years. I give credit to NN Mookerjee, secretary, consumer affairs and Vijay Aggrawal, chairman, FMC for foreseeing the problems in right earnest and they have tried to inculcate certain basic elements into the systems. Mookerjee has made exchanges aware about various needs of strengthening the exchanges.
This process of interactions, familiarisation, stimulation and a kind of thinking has been going on for last three years. As far as EICA is concerned we have been sensitised to this particular point and from the very beginning we have tried to put a lot of points for which we were guided.
Wealso visited various exchanges not only domestic but abroad. We visited very frequently New York, Chicago and Singapore exchanges. We tried to study the literature on various exchanges. Moreover, I had a good exposure at a recent UN conference on trade development. I could realise various aspects which were told to various exchanges including ours. I also gave a speech. We have tried our best to inculcate the elements which we were told. Of course we have to still innovate, upgrade and improve constantly.
When are you planning to switch over to on-line trading from the open outcry system?
We will not switch. We decided to try open-outcry system. And there will not be substitution but there could be always supplementation or addition. Just now we have open out-cry and later on we will not substitute but supplement or adopt the electronic method.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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