Defunct Gujarat cotton exchange to go online

Surendranagar Cotton and Oilseeds Association (SCOA), the Gujarat-based single commodity exchange offering open outcry trade in raw cotton (kapas), has halted its activities temporarily because of its members' apparent lack of interest in the traditional trading system.

It has not yet sought permission from the regulator, Forward Markets Commission (FMC), to offer new contracts on its platform. It is planning to launch fresh contracts only in August for October delivery.

The regional exchange has lined up plans to introduce online trading in association with the market leader, Multi Commodity Exchange, without stripping off the open outcry. But what is surprising is that the exchange is planning to use the network of the East India Cotton Association (EICA), which itself is struggling to get a good response from its members since the launch of cotton futures four years ago despite repeated requests from EICA President K F Jhunjhunwala.

"We have not sought FMC's permission for the launch of fresh contracts as the season has already come to an end. We do not want any trade without delivery, which is impossible during the off-season. Therefore, we have decided to abstain from fresh contracts for at least the next three months," SCOA Director Yogendra Sinh said. "A majority of the members had suggested that we go online. Besides it would have helped us to retain them, Sinh added. "Secondly, if inter-exchange arbitrage is possible, then why can't inter-trading system arbitrage be possible? After all, prices of one commodity differ between open outcry and online trading systems and this is a good opportunity for inter-mode profit-making," Sinh added.

SCOA's tie-up with EICA is not likely to affect the business of either of the two exchanges as the former offers futures in raw cotton (kapas), while purified cotton (rui) is offered on the latter.

"Talks are on an advanced stage with MCX and EICA. But, launching online trade would take at least one year as we need to generate funds to meet investment demand," Sinh said.