The Hindu Business Line : Quality norms bug NCDEX potato futures

Pros & cons
The exchange has failed to generate volumes in view of the ambiguity.
NCDEX says it will ensure quality of potato delivered.
Trade unable to accept the exchange's assurance.

Kolkata , July 20

Confusion over variety has reportedly made NCDEX's recently launched potato futures contracts less attractive to investors.

According to commodity brokers and portfolio managers, against the market norm to trade referring seed varieties, the contracts floated by NCDEX assures delivery of `fair average quality' (FAQ as it is known in broking circle).

Volume

Whatever be the reason, the end result is: as on July 19, NCDEX generated a volume of 610 tonnes on the near (August) contract compared with 18,500 tonnes recorded on similar contract floated by rival MCX on 3797 variety.

On all three contracts put together, NCDEX records a volume of 2000 tonnes, which is a fraction of the total turnover on 3797 variety.

Though it does not deny that the contract is not designed as per the general trading practices, NCDEX questions the very basis of variety references -

offered by other exchanges, if any - and its fall out.

Reasoning

"As an exchange, we try our best to avoid variety references as it cannot be legally assured without carrying out the costly DNA test. Moreover, there are at least 17 major potato varieties available or popularly traded in different parts of the country.

Contracts on these varieties would therefore definitely be localised in nature and will run higher risk of price manipulation," an NCDEX official said. "Ours is a broad-based national contract on potatoes whereby quality of the delivery is assured by the exchange," the official said.

"Also these contracts are compulsorily delivery backed and do not promote cash settlements through matching of intentions".

"We do not doubt NCDEX's intentions.

There is no denying that a localised contract runs the risk of being squeezed.

But the trade seems to be not yet ready to accept quality assurance without variety reference at least in the case of potatoes", says a trade source.