NCDEX revises cotton trading norms

The National Commodity and Derivatives Exchange (NCDEX) on Thursday launched new medium staple and long staple cotton futures contracts, with changed specifications. The new cotton contracts will replace the existing medium and long staple contracts, the exchange said in a circular Wednesday.

NCDEX said that the medium staple cotton contract and the long staple cotton contract will be available for December 2004 and for February, April, June, August, October, and December 2005 instead of being offered every month.

Initially, the contracts expiring on Dec. 20 and Feb. 18 will be available for trading.

Basis for the medium staple cotton contract will be ex-warehouse Abhor, exclusive of all taxes. The unit of trading and delivery will be 55 bales (1 bale=170 kilograms) with delivery centre at Abhor, Sisra, and Sriganganagar.

The main or basis variety will include all cotton traded as J34 and SG with a basis length of 25.5 millimeters. Basis for the long staple cotton contract will be ex-warehouse Kadi, exclusive of all taxes.

The unit of trading and delivery will be 55 bales with delivery centre at Kadi and Rajkot. The basis variety will include all cotton traded as Sankar with a basis length of 28 mm.

The new cotton contracts launched by NCDEX have introduced many new specifications, some of which include premium/discount charged on the basis of difference in the moisture content and trash content.

The basis in moisture permissible will be between 8.5-9.5 per cent and maximum limit will be 11 per cent with discount varying with every percentage change in moisture.

The trash content basis will be 4-5 per cent with a maximum limit of 7 per cent.

A trash content in the underlying over 4 per cent will carry a discount in the ratio of 1:1 and trash content below 4 per cent will carry a premium in ratio of 1:1.

"The staple length of cotton has been increasing in past few years, particularly in the past two years, where it has increased by 0.5 millimetre. This has prompted the change in the quality specification with respect to basis staple length," said an official at the exchange.

"Also changes have been brought in trading and delivery units. This is because of the introduction of seller's option (where the seller can give his intention of delivery and the buyer will have to accept the delivery), instead of the intent matching system (where orders of those sellers intending to give delivery were matched with those buyers who requested physical delivery)," he said.

The official said that changes in the trading and delivery units have been brought about, as both have to be equal in case of seller's option.

Changes with respect to premium/discount with respect to deviations in moisture content and trash content have also been introduced after extensive talks with traders, he said.