Currently, the curtains have are down on the February hedge and the members are waiting for the formal clearance from the Forward Markets Commission (FMC) to start the May hedge, which should have started from March itself. A number of court cases are still pending, one of which has stalled the functioning of the exchange.

Reacting on the February hedge, vice-president Pradeep J Sheth told The Financial Express, about a week back, that everything has been settled and May hedge would soon start off. But it is unlikely as the FMC has questioned the working of exchange directors.

The 17-member board, of which three have already resigned over the imbroglio, is anything but united on anyissue. The FMC is yet to allow the exchange to start with the May hedge, which was scheduled from the first week of March. The three directors, who resigned from the board are Jagmohan Poddar, Om Prakash Goyal and Subhas Singla.

Poddar, representing the mill owners on the board, is a close confidant of Sanjay Kajaria, chairman of the Indian Jute Mills Association.

Poddar resigned on February 17 to protest against the ongoing activities at the exchange. The other two, Goyal and Singla represented the brokers' panel. Goyal resigned on February 27 and Singla on March 2, saying they were "threatened by hoodlums".

Exchange board sources said that the turn of events starting from mid-January clearly reflected a section's schematic approach towards the functioning of the exchange.

"The clearing house committee of the exchange in its meeting on January 15 expressed concerns over the net open position, which was around 18,750 bales (1 bale = 1.8kg). However, if the all the member and non-members are allowed tokeep the legitimate open position of 1500 bales each, then the overall open position would have been 6,75,000 bales. So, clearing house committee concern is baseless," the board member said.

Thereafter on January 28, the board members noted that there is a sharp difference between the hedge prices and the forward contract prices. "When it was calculated we found that the difference between the two is only three per cent and that five weeks before the hedge closure.

It is quite a common phenomenon. Moreover if hedge prices and forward contract prices would have been same, then what is the point in conducting futures trading?", the director asked.

On January 29, the board met again and discussed on the trade unions' strike call in the jute mills. "The board recommended imposition of margin on buyers at a rate below the prevailing hedge prices. This was made considering that if the strike is averted, jute bag's price will crash leading to major default. However, no provision was taken for the othereventuality, which would have lead to steep rise in prices," the source pointed out.

On February 1, the Forwards Market Commission, after amending the margin provision, imposed a penalty of Rs 75 per 100 bags, if the prices rise above Rs 1,990 per 100 bags. The director alleged that this notice was not duly posted on the exchange notice board.

"The exchange received the FMC fax on February 1 at 6.22pm and it should have been up on the notice board immediately. However, it was only the next day at around 12.30 noon, the notice was made public. In the meantime, spurred by rumours about the FMC notice and there was heavy selling of around 20,000 bales but the prices did not fall to Rs 1,990, as expected by the bears and continued to roam around Rs 2,040," the director said.

On February 3, he added, the clearing house committee only termed the purchasers' dealings as `benami' and recommended squaring up of all transactions, forfeiture of all deposits and freezing of all payments.

The next day, trading wassuspended for three days by the president elect, Bhag Chand Jain, citing bye-law 62A of the exchange which also states that a board meeting should be convened immediately but no such meeting was convened.

The board member also alleged biased functioning of the clearing house committee. "The committee met on February 4. A stay order on the exchange proceedings from the Calcutta High Court was tabled. Viewing this order, few ring members noted that they will not pay their margins but the committee decided to declare 20 ring members as defaulters under certain bye-laws. No opportunity was given to these members to explain their stand, though it is allowed under those laws. The committee also decided to square all transaction at Rs 2,020 per 100 bags without citing any bye-law," the member said.

Thereafter the board met twice on February 9 and 11 and decided to declare the committee's decisions as null and void.

"On the February 11 meeting, in a bid to resolve the crisis, the board members fixed Rs 2,039.80(per 100 bags) as the cut-off price for imposing margins. Though it was an unanimous, the president elect and vice-president later backed out. Two days later, another notice informing further suspension of trading was up on the notice board, without citing any bye-law," the board member said.

On February 23, the last day of the three month hedge period, ring members agreed to square up their outstanding transactions and the market was opened for a day. All dealings were squared up, except for 3,850 bales. The sellers of this amount insisted that they should be given the difference between their price and the Rs 2,020 as fixed by the clearing house committee.

"Upto March 22, no special margin was released for this amount and it was used as a tool to force the buyers to settle the matter at an unreasonable price. Next day, the buyers lost their patience and were made to settle at the offered rate of the sellers. Transaction slips dated February 23, were accepted by the secretary under instructions from thepresident elect, Jain. Subsequently margins were released and payments cleared," he said.