1st phase launch in Gujarat, West Bengal & Kerala

Pratim Ranjan Bose

Plans afoot

Exchange to

promote model similar to cash segment of the equity market.

A participant

may be allowed to engage in numerous buy or sell transactions.

.

Kolkata, Nov. 23

National Spot Exchange for Agricultural Produce (NSEAP) - promoted by Multi Commodity Exchange and its promoter Financial Technologies is planning a simultaneous roll out in Gujarat, West Bengal and Kerala during the second half of January.

According to sources in MCX, in the second phase NSEAP will roll out electronic spot market in Rajasthan, MP and Maharashtra.

Commodities identified

The commodities identified for spot trading are groundnut oil, cottonseed oil, cottonseed in Gujarat; soyabean and soya oil in MP; guarseed and mustard in Rajasthan; potato in Bengal, cotton in Maharashtra and rubber and spices in Kerala.

While the detailed modalities of trading are yet to be clear, preliminary information suggests that NSEAP would promote a model similar to cash segment of the equity market whereby a participant would take (or give) delivery at the end of the trading session.

In other words, in NSEAP a participant may be allowed to engage himself in numerous buy or sell transactions on each commodity throughout the session and would take (or give) delivery depending on his final position.

The exchange is yet to finalise the duration between the trading day and the settlement.

MODEL

Though a clear picture is yet to emerge, preliminary information suggests that the NSEAP model would be in sharp contrast to the trade-to-trade model (plus auction for commodities not matching the contract specification) likely to be followed by NCDEX Spot Exchange Ltd (NSEL), the spot market outfit of NCDEX.

In trade-to-trade model which is supposedly a transparent version of the existing spot market auction method - the participant would have to complete each transaction on a particular commodity through delivery.

The aim is to limit entry of speculative interests in a spot market resulting into a fundamentals-oriented price discovery.

Legal complications

Incidentally the trade-to-trade method is followed on case-by-case basis in equity market to curb speculative interests on particular stocks.

When contacted leading commodity brokers in the future market could not throw light on the modalities to be followed by NSEL and NSEAP due to lack of information.

"Both the exchanges are yet to present a clear picture of the trading and delivery practices to be followed," said Mr Mohan Natarajan, director Kotak Commodity Services Ltd. "However, it would be a challenge for both the exchanges to operate within the legal framework," he added.

(This article was published in the Business Line print edition dated November 24, 2006)
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