Despite ``slowly rising volumes,'' EICA is debating with its members about the various ways to make trading in ICC more user-friendly. Even though Kotak was silent on the subject, EICA of late, has been toying with the idea of experimenting with international futures in cotton to improve volumes on the exchange, which is currently trading on ICC since December 5, 1998.

For this purpose, the association is said to be thinking of roping in international members to trade in ICC. EICA has also plans to widen its reach to other cotton producing centres like Coimbatore, Punjab, Haryana and Gujarat by roping in members from these regions. In one of its periodic meetings recently, a section of EICAmembers felt that the exchange should approach the concerned authorities to allow trading on international futures as permitted on two other exchanges--for pepper on IPSTA-ICE, (Cochin) and for castor oil, Bombay Oilseeds and Oils Exchange (Mumbai) (BOOE)BOOE is expected to get the much-awaited clearance from the Forward Market Commission for trading in international castor oil futures, this week. IPSTA-ICE has been unable to kick off the international pepper futures even when the government has allowed dollar denominated deals on the exchange last year.

``The current level of trading volumes in ICC could be said to be healthy,'' says ABN Amro Bank NV's vice-president Chitra Shringare. ``However, it could improve if international cotton futures are permitted. The EICA is also thinking of roping in international members to trade in ICC in the hopes of improving volumes.''

Earlier this month, ABN Amro Bank was selected as clearing bank and the first institutional member of EICA. Times Bank is likely to bethe second institutional member (and not a clearing bank as indicated last week). Times Bank is expected to bring in around 10 trading members on its list before it could be accepted as the institutional member.

Even before, trading in cotton futures was kicked off in December last, the exchange authorities have been grappling with ways to make hedging in cotton an attractive proposition to cross- section of the domestic cotton economy, including speculators and farmers and thereby improve volumes on the exchange.

The idea of international futures on EICA might be too early at this stage, especially because it has been only 75 days since trading in the domestic cotton futures was kicked off. The first cycle of the February delivery contract will end on February 27. This will indicate how well the EICA's experiment in kicking off cotton futures after 32 years has fared. Also, trading in couple of the subsequent contracts (April and June) would have to be stabilised before EICA can seek permission forinternational futures. However, industry sources feel, international cotton futures has become almost inevitable on two main counts, if not more. It's sort of a chicken and egg situation.

Some of the big cotton textile mills, who rely more on imports for their cotton requirements, prefer to hedge their risks on the foreign commodity exchanges through their associates overseas. This makes trading on the domestic cotton exchange a bit less attractive, to say the least, and therefore, low volumes on the EICA. The delivery of the transacted contract too is not mandatory, which makes the actual user-hedger unsure of what quality he will receive at the end of the delivery cycle. The Reserve Bank of India has permitted Indian corporates to hedge their commodity related risks on foreign comexes since September 25, last. No corporates have made headway in this area. If international futures are permitted in cotton on the EICA, for example, big players, including mills and speculators, might be attracted to trade onthe exchange. This will improve the overall volume on the exchange.

Further, to increase volumes it would be necessary that trading members are enrolled with the institutional members like ABN Amro and Times Bank (the prospective IM) at the earliest, feels Shringare. This requirement has made both ABN Amro and the Times Bank active in luring the mills, cotton traders, and even the speculators, as its members. Both these banks are currently said to be in sluggest sort of to get maximum number of members under them through their own innovative packages.

Interestingly, at Surendranagar (Gujarat), over 150 speculators trade in illegal cotton futures and settle large volumes of trades daily. Though there are small defaults, the illegal trade is vibrant and does not bother much the concerned authorities. The trading volumes on the EICA could improve if members of this illegal trade at Surendranagar are lured to trade on the official markets like EICA, thereby bringing the illegal trade to the official channels.However, for this to happen, the government and the FMC needs to intervene, industry sources feel. Says a cotton trader in Mumbai requesting anonymity: ``The government needs to announce a ban on the illegal trade in cotton futures from a particular date. Thereafter it needs to post police at these centres for few days time and empower them to nab anyone engaged in illegal cotton futures trade. Hope this will end the illegal trade and initiate the process of legalising of the cotton futures trading on the exchange.''

Lastly, to lure more number of traders on to the legal channels, traders feel, the per unit transaction cost of over Rs 60-75 needs to be lowered to ``affordable'' limits of under Rs 35-40.