The government has been keen to give a further boost to the commodity futures trading in more than few commodities that are currently being traded on 22 odd comexes. However, given the administrative, financial and other related issues, including reluctance on the part of the comexes, there has been extremely slow progress on this issue.

Last September, the corporates have been allowed to hedge their commodity related risks on international comexes. However, much needs to be improved on the domestic comexes.

The decision of forming the federation of comexes was taken on Wednesday last at a closed-door meeting with the Forward Markets Commisison (FMC) between the representatives of these comexes and that of United Nations Committee of Trade and Development (UNCTAD) and the World Bank.

Among others joining the federation of comexes will be: East India Cotton Association (EICA, Mumbai); East India Jute and Hessian Exchange (Calcutta); The Bombay Oilseeds and Oils Exchange (Mumbai); The Indian Pepper and Spices Traders' Association (IPSTA, Cochin); The Coffee Futures Exchange of India (Bangalore) and couple of gur trading associations of North India.

Once formed, the federation would be open for other comexes to join at a later date. These exchanges will have to seek clearance on the subject from their respective members. If cleared, they will even have to change their bye-laws to incorporate the concept of the federation, and forward their collective views to FMC. The additional number of commodities to be added to the national grid too will be decided after the comexes forward their collective proposal. No formal date has been fixed for this purpose, though.

The decision of the federation of comexes therefore, nips in bud the expectations of the National Stock Exchange setting up its own commodities trading arm, which it had been advocating since the past couple of months.

However, NSE's threat still looms large over the existing comexes. For, if the latter fail to come up with the viable and acceptable proposition by next couple of months, there is every likelihood that the government will ask NSE to take up the project of setting up a national grid for commodity futures trading. This could be almost in the same manner as the government had done earlier in the case of setting up NSE which gave the Mumbai and other leading stock exchanges a severe body blow from which they are yet to recover.

According to the Kabra Committee (on forward markets), there are 32 associations recognised under Section 6 of the Forward Contracts (Regulations) Act, 1952. Of these, 22 comexes conduct futures in one commodity through open out cry system. More than one exchange trade in just one commodity (gur and castorseed). Because of the extreme paucity of finances and general apathy towards online trading, these comexes were opposed to the idea of going on-line even at their respective exchanges.

The idea of the federation of comexes was, therefore, mooted jointly by Lammon Rutten of (UNCTAD) and Deepak Ahluwalia (World Bank, New Delhi office). The representatives of the eight comexes present at the meeting, finding little options but to accept the concept of collective online trading had finally agreed to form the federation.

FMC chairman VK Aggarwal, backed by the government, has been strict enough not to clear application for setting up any new comex in the country without offering online facilities to its prospective members. Accordingly, the proposed Sopa Board of Trade (SBOT), a national level futures exchange at Indore (Madhya Pradesh) to trade in futures of soyabean, soyaoil and soyameal has accepted to offer online trading facilities on its exchange. In order to become operational by mid-1999, SBOT has invited applications from suppliers of software for its national level on-line trading system.

Lastly, it may be recalled that the former Food and Consumer Affairs Secretary NN Mookerjee, in his speech (read by Aggarwal in his absence) at the inauguration of cotton futures at EICA's Sewree exchange on December 5 had said in this regard: Times are changing and we must learn to adjust. In every part of the world the trend today is to have fewer and fewer exchanges...With developments in transportation, communication and banking facilities it should be possible for exchanges to cover much larger geographical areas and at the same time, provide modern and efficient trading facilities...

Instead of trading in only one or two commodities, resulting in limited resources being spread thinly and inhibiting adequate income generationfor improvemnet of the exchanges, we should think interms of one and the same exchange dealing in a number of commodities, so that adequate turnover and income is generated for undertaking essential improvements for the exchange.

Mookerjee had mooted the idea of merger of comexes. However, he had said that our comexes have till now been far too individualistic and that there is no professional management in any of these exchanges.

The logical conclusion to this process would be setting up of a National Commodity Exchange, said Mookerjee in his speech. Such an exchange would organise trading of all permitted commodities, have membership spread throughout the country, provide facilities for screen based trading at different centres, guarantee the performance of contracts and promote facilities for public warehousing and a warehouse based delivery system. In short, such an exchange would revolutionise the commodity futures market in the country.

The federation of comexes proposed last week is however, would be different in that it will use the existing administration and the reach of the comexes joining the federation, improve the overall working of these comexes and also trade in more than one commodity currently traded.