Procedural snafu hampers black pepper futures arbitrage

Traders are not arbitrating the difference in prices of black pepper futures on the National Commodities and Derivatives Exchange (NCDEX) and the National Multi Commodity Exchange (NMCE) because of procedural delays involved.

People with good holding capacity can, however, take advantage of the situation, traders said on Monday.

Delivery on the NCDEX is on a dematerialised mode. The NMCE, on the other hand, operates on receipts. So any trader wanting to take advantage of this arbitrage will have to convert his purchases or sales into the delivery format followed by the other exchange.

"Normally, it takes minimum of 15 days to complete these formalities. Most of the people are not having that kind of a holding capacity," said Jojan L Malayail, a pepper trader and exporter in Kochi.

"And it may be taking place but not as widespread as some people think", he said.

As per the Saturday closing prices, there is a difference of Rs 258 per 100 kg between the NCDEX and NMCE June contracts of Malabar grade pepper.

People with own processing facilities are better placed to take advantage of the arbitrage opportunity, according to traders.

People looking for arbitrage opportunities will also have to reckon with the issue of quality of the stocks in the possession of different exchanges, said a commodity analyst in a broking firm in Kochi.

"The grade may be the same. But the quality in terms of freshness of the stock may be different", he said.

All these issues have to be resolved before a deal is struck with an eye on the arbitrage opportunity, said another trader.