The Securities and Exchange Board of India (SEBI) Chairperson Madhabi Puri Buch has been urged by the Commodity Participants Association of India (CPAI) to request that MCX swiftly disclose the new cotton futures contract specification. The present contract will expire on December 30, according to CPAI President Nariender Wadhwa, who noted that MCX informed on August 26 that it was changing its cotton contract specification and that no new positions will be allowed for January 2023 and subsequent contracts. The contract will enter the delivery period five days prior to that. Market participants and hedgers must convert their position into a contract that expires after January 2023.
The notification of the updated contract specification is being awaited by the participants. In a letter to the SEBI chairperson, Wadhwa stated that the delay in the announcement was merely fueling anxiety and unease among participants in the futures market and the cotton industry. The InterContinental Exchange (ICE) brokers and banks have reportedly been contacted by numerous Indian companies to facilitate hedging for their inventory, exports, and imports as the delay in the news specification notification have created unease, according to the Reserve Bank of India’s (RBI) declaration that cotton is “international referenceable.”
Wadhwa added that the daily price constraints on the Indian cotton contract shouldn’t be restrictive in the amended contracts because the existing system denies small and medium-sized businesses the chance to hedge their pricing risks while giant corporations will hedge ICE. Although the price restrictions at ICE are wider than those offered on our exchanges, they are nonetheless appropriate given their trading conditions. The daily price caps on local exchanges shouldn’t be kept so low, he argued, as to drive participants out of the ecosystem.
The CPAI president determined that each commodity’s maximum permitted open interest should be calculated using “deliverable supply,” which is a principal-based metric. Additionally, he asked for an increase in the near-month contract’s open interest limit. Wadhwa asserted that by taking all of these measures, higher liquidity would be ensured and asked for a contract specification consistent with principal-based methodologies to support the strong development of cotton futures.