Futures trading rescues sick oil mills

Kochi: Futures trading of coconut oil, started by the First Commodities Exchange of India (FCEI) last year, has saved hundreds of sick oil mills in Kerala from closure.

The oil mills in the state were in the verge of shutting shop because of the downward trend in the market for the last two years and due to a lack of advance information. Come futures trading, and farmers and functionaries started getting advance information about the future trends in prices.

"The revival of the oil mill industry started after futures trading. Many industry units got a new lease of life due to this. Now we are planning to introduce online trading, so that traders from outside Kerala can also participate in the business. Futures trading will help traders to purchase or sell from the market in advance" says FCEI chief executive A Ananthan.

Futures trading was started in 29 October 2001. By that time coconut oil prices were Rs 3,000-3,050 per tonne. The market grew up to Rs 4,000-4,500 by December 2001, as more traders entered the business through futures trading.

FCEI is promoted by the Cochin Oil Merchants Association in association with First Commodities Clearing Corporation of India (FCCCI), with the purpose of helping its members to achieve dual economic purposes as price discovery and risk management.

"FCEI was the first commodity exchange approved by the government for futures trading in copra and coconut oil. All transactions confirmed by the exchange will be guaranteed by the FCCCI, the only clearinghouse that has got the approval from Reserve Bank of India. The exchange is structured for the benefit of growers, processors, traders and intermediaries.

"The exchange will conceive and develop the trading, clearing and settlement systems that will be user-friendly. Our daily clearing is based on the market-to-market system with low transaction costs. We create a trading scope for more market participants," says Anandan.

Futures trading ensures balance in supply and demand position throughout the year. It encourages competition and provides future trends of the prices to growers and other trade functionaries.

Three classes of memberships are available with FCEI trading members, trading-cum-clearing members and institutional clearing members. Trading and trading-cum-clearing members should deposit Rs 50,000 as minimum equity in the exchange. The admission fee is Rs 25,000 and the customer protection fee is Rs 5,000 for both memberships. Trading-cum-clearing members should pay Rs 25,000 additional as equity in FCCCI. The annual subscription rate is Rs 5,000.

There shall be 12 contracts each in coconut oil and copra in a year. The duration of the forward contracts in coconut oil and copra between the commencement month and the contract shall not exceed three months. Transactions in coconut oil and copra contracts may commence three months before each contract month for the respective contracts.

FCEI has also plans to introduce futures trading in other commodities, too.