• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Harish Damodaran

NEW DELHI, Sept. 20

EVEN as there is no clear indication as to whether the Centre will dismantle or continue with the monthly release mechanism, e-Commodities Ltd (ECL) has decided to go ahead with `mock' futures trading in sugar from October.

``The trading solution is ready and it has already undergone internal beta-stage stress testing. We will now open it up for outside players (millers, traders, etc), who would be given mock trading accounts,'' Mr Paritosh Joshi, Director (Marketing), ECL, told Business Line.

He said mock trading would enable the participants to get a `real feel' of what futures trading is all about. ``Once that happens and traded volumes reach a critical level, we can go in for full-fledged commercial trading,'' Mr Joshi added.

The Delhi-based ECL — which owns and maintains sugartrade.com, a B2B content and commerce site dedicated to sugar — is among the three companies, who were, in November 2001, accorded in-principle clearance to set up futures exchange in sugar.

The other two are e-Sugar India, Mumbai and the Hyderabad-based NCS Infotech Ltd.

Interestingly, while the Bajaj Hindustan-promoted e-Sugar India has kept on hold its plans to establish a futures exchange — it was originally scheduled to become fully operational from July — following the Centre's dithering over the proposed dismantling of the release mechanism, Mr Joshi stated that ``we do not view this as a real constraint in the present context''.

Although doing away with the release mechanism — which regulates the quantum of sugar that each mill can offload in the open market during any particular period — would considerably boost the volumes that can be potentially traded, Mr Joshi felt that ``the existing monthly release quotas offer large enough volumes for futures trading to be commercially relevant, if not viable''.

ECL officials pointed out that under the current monthly release system, the total quantum of free-sale sugar offloaded into the market comes to nearly one million tonnes. If one takes a standard contract size of 10 tonnes (each of which would involve both a buyer as well as a selling party) and trading volumes to be 20 times the underlying physical assets, there was a potential to trade up to 40 lakh contracts per month. ``Even if we manage to tap 10 per cent of this potential, it translates into four lakh contracts per month, which is fairly decent'', they noted.

According to Mr Joshi, futures trading could, as of now, go hand-in-hand with release controls. The trading volumes would go up as and when the monthly release mechanism gives way to a quarterly and then six-monthly system, followed by the complete removal of controls on sale of sugar by mills. ``This may be done in a phased manner. And over this period, the participants will also become increasingly familiar with futures trading and perceive it as an effective tool for hedging and price discovery'', he added.

Significantly, 25 per cent of ECL's equity is held by the Indian Sugar Exim Corporation (ISEC), which is a joint venture of the Indian Sugar Mills Association (ISMA) and the National Federation of Cooperative Sugar Factories Ltd (NFCSFL). Both these apex bodies of the industry have vehemently opposed the dismantling of release controls and had, in fact, successfully lobbied for restoring the monthly release mechanism with effect from July, this year. The Centre had, for a brief period from January to June, experimented with a system of quarterly releases.

``We are only a market provider and it would not be proper for us to comment on the pros and cons of the release mechanism. These are matters of policy that fall in the Government's domain. But in the immediate context, we do not view the release mechanism as a serious impediment to futures trading,'' Mr Joshi observed.

Other promoters of ECL include Balrampur Chini, Dhampur Sugar, EID Parry, Thiru Arooran Sugars, Bannari Amman, Simbhaoli Sugar Mills, J.K. Sugar and DCM Shriram. Besides, cooperative mills in Maharashtra, owing affiliation to the former Deputy Chief Minister, Mr Gopinath Munde, have also picked up a separate stake in the company.

For setting up the exchange, ISEC has tied up with the Kuala Lumpur-based Malaysia Derivatives Exchange, which has provided the technology, apart from helping in the formulation of trading rules and bylaws and creating a surveillance system and clearing house. The basic software for futures trading has been developed by Satyam Infoway.

Send this article to Friends by E-Mail

Stories in this Section
Poor man's tractor from Icrisat

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line