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Wednesday, Feb 20, 2002

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Agri-Biz & Commodities - Sugar

More exchanges invited to start sugar futures

G. Chandrashekhar

MUMBAI, Feb. 19

THE Centre seems to have come under intense pressure following its recent decision to effect complete decontrol of sugar in the ensuing financial year after futures trading in the commodity is operationalised by the start of the new sugar season in October 2002.

Decontrol of sugar is now linked to opening of sugar futures exchange in the country. A section of the sugar industry has, however, developed serious apprehension of a price collapse in the event of complete decontrol because of the large overhang of stocks.

In order to facilitate the industry manage price risks, three companies _ two based in Mumbai and one in Hyderabad _ have been granted in-principle permission to set up sugar futures exchanges before October 2002. After thorough scrutiny, they were short-listed from over a dozen applicants who had evinced interest.

The policy-makers appear to be of the view that futures trading can prevent a price collapse or at least mitigate the rigours of a steep price fall upon complete decontrol. In its desperation to ensure that futures trading in sugar is somehow kicked-off for the new season, the Ministry of Consumer Affairs has decided to invite many more existing exchanges willing to organise sugar futures trading to send fresh proposals.

In pursuance of this decision, the commodity futures regulator, Forward Markets Commission (FMC), has shot off letters to all existing exchanges asking them to send detailed proposal before the end of the month. The selection criteria_ including mainly online trading system_ would of course remain the same.

Interestingly, it was only a few months ago that the Government rejected proposals submitted by some of the existing exchanges. The Government's rationale for chasing the existing exchanges is that they have already completed procedural and statutory requirements for some commodities and have infrastructure for starting futures trading.

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