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Pepper futures exchange faces closure over row with FMC

D Jose in Thiruvananthapuram

Futures trading in pepper through the International Pepper Exchange at Kochi in Kerala is likely to come to a standstill after July.

The Forward Markets Commission, the futures market regulator in India, is insisting on putting in place a mechanism to guarantee the contract entered into on the exchange.

The Indian Pepper and Spice Trade Association, which runs the exchange, has not been receptive to the idea. The IPSTA feels that a mechanism for guarantee is uncalled for. There is provision for paying margin money and settling the loss before the commencement of the trade the next day, it maintains.

Traders have been paying margin money of Rs 30,000 for a unit of 2.5 tonnes. A meeting of the IPSTA held last week could not reach a consensus on the measure suggested by the FMC. Many of them felt that it is a change for the sake of change.

The IPE is one of the best-managed commodity exchanges in the country today, say observers. Any change in the functioning of the exchange will affect its rhythm, said a member of the IPSTA.

The IPSTA has already decided to stop futures trading from July following the ban clamped by the FMC last month.

The volume contracted for the month of May is 221,175 tonnes and that for June is 42,525 tonnes, according to the IPSTA secretary K G Samson.

He told Rediff On The NeT that the meeting has decided to send a high power IPSTA delegation to Bombay. The team will seek to persuade the FMC chairman to grant more time to evolve a consensus on the issue.

A four-member delegation led by the IPSTA president Sanjay Manjariwala is expected to meet the FMC chairman V K Agrawal in Bombay. However, the IPSTA sources do not expect an immediate solution to the stalemate.

The sources said that the FMC had warned about the consequences of not guaranteeing the contracts well in advance. The FMC chairman, who reviewed the functioning of the exchange last month, was very critical of the IPSTA for not putting in place the guarantee mechanism.

He had reportedly told the IPSTA that the main reason for foreigners keeping away from the exchange was the lack of the guarantee mechanism. It may be recalled that only one member has joined the exchange after it was commissioned one-and-half-years ago.

A section of the IPSTA office bearers are hopeful that some kind of consensus is possible among the members if more time is granted to iron out the differences. "We are hopeful that the FMC would grant us more time, as we have already appointed consultants to go into the issue. The consultants -- Bombay-based RSM and Company and Nanavati Associates -- have been asked to give their report immediately," says Samson.

The ban on futures trading is likely to affect the pepper export at a time when the country is expecting a better crop this year. The trade estimate of crop this year is 65,000 tonnes, up five per cent over the previous year's.

Pepper exports had registered a marginal fall of 619 tonnes during 1998-99, compared to the previous financial year, though it recorded a 30 per cent increase in value terms, according to the Spices Board of India.

If the futures trading come to a halt, then the exchange and traders will be in trouble, as they will not get any future indication of the prices.

The IPSTA used to run five or six months' futures at a time. Indian pepper prices, which witnessed a record low during the week ended May 7 had perked up last week by registering an increase of more than Rs. 300 per 100 kg owing to active presence of the US in the market.

America had turned to the Indian market following a shortfall of arrival from Vietnam and Malaysia on account of heavy showers there. The production estimates for Vietnam is 22,000 tonnes and that of Malaysia is 13,000 to 15,000 tonnes, according to the IPSTA sources.

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