As Tea Board asks NSE.IT to come up with new model

G.K. Nair

For improving things


Provisions for

anonymity bidding should be made functional.

Smoothening rough

edges in parallel bidding.

Should prevent

any provision for proxy bidding.

Kochi, July 13

Electronic auctions have the potential to revolutionise tea auctions if implemented using a suitable system, as they would ensure transparency, speed and wider client coverage.

However, since the Tea Board has entrusted NSE.IT with the job of coming up with a model for introducing electronic tea auctions, many issues deserve consideration and should be viewed against the background of the Board's reported dissatisfaction over the model provided by the IBM/Accenture team, industry sources told

Business Line

.

Recommendations

They said AF Ferguson, which was entrusted by the Tea Board to study the primary marketing structure of teas, had recommended electronic auctions as a means to improving transparency and competitiveness in the auction process.

These objectives, they said, were supposed to be derived from the inherent advantages of the system in terms of longer price discovery time by allowing parallel bidding, anonymity of bidding and provision for detailed transaction analysis or the bid history. The additional objective of electronic auctions was to reduce transaction cost and time in the auction sale process. In this connection the following are the major issues:

Anonymity of bidding

The provision for anonymity of bidding exists in the e-platform but the same has not been made operational. Importantly, revealing the name of every bidder during the bidding process is a feature virtually non-existent in any on-line auction system in the world.

Revealing the name of the bidder will only defeat the very purpose of electronic auction that provides for transparency in the sale process.

Parallel Bidding

Another advantage of e-auction is provision for parallel bidding as opposed to serial bidding that is being followed in open outcry process. Two disadvantages of the latter are that it puts pressure on completing the catalogue and also makes the system vulnerable to pre-determined market trend.

Though electronic auction permits a parallel bidding of the entire catalogue, the system adopted in the existing e-auction centre is that 12 lots in a page will be kept open for three minutes. The three minutes is divided into two phases: two minutes for buyers' bidding and 1 minute for broker knock down. Essentially, this means the average throughput of present electronic auction is 4 lots per minute or 15 seconds per lot, not very much different from the open out cry system.

This is a problem in the current module. Modifications are necessary in the system so that the time for a particular lot is extended automatically, provided there is some movement in price at an earlier stage before the closing time allotted for a particular lot.

If no movement is recorded at an early stage, the tea should be out listed.

Division of Lots

As such, the e-auction platform does not have a provision for division of lots but the same is reportedly done at the call over time.

It is important to assess the reality in this regard, which can be done through verification of electronic auction report with that of Post Sale Catalogue, since this amounts to gross violation of the rules.

Proxy Bidding

E-auction platform should not have provision for proxy bidding.

With electronic auctions, settlement banking should be made an integral part of the system, which will take care of the unresolved issues relating to reduction in prompt period.

In fact, a system with all these enabling provisions would have revolutionised the tea auction system, "but the faulty and half-hearted implementation of the system meant that it was simply a replication of the existing physical system with all its attendant inadequacies in terms of ensuring the provisions of a true public auction process", they alleged.

As a result, even about four years after the submission of the recommendations by the consultants in 2002, the electronic bidding system still remains a non-starter, they said.

They have also suggested that tea auctions at all centres in the country should be held on a single day electronically through a limited area network.

In the first phase it should be confined to the existing auction centres, before making it available on line in phase 2.

The current schedule of auctioning was negatively affecting the trade, they claimed.

(This article was published in the Business Line print edition dated July 14, 2006)
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