Kochi: The world’s oldest pepper exchange, run by the India Pepper and Spice Trade Association (IPSTA) at Mattancherrry, in this port city, should have been celebrating its golden jubilee this year.

Instead, it is on its deathbed, having been deserted by the trade for three years now.

The IPSTA Pepper Exchange began futures trade in pepper in September 1957. But today, in what was once the hub of pepper trade, an eerie silence envelopes its office at IPSTA Building on Jew Street. The trading floor was rented out two years ago and with a dwindling income, the ground floor of the building has now been leased out to shops that sell artifacts to tourists visiting the heritage building.

Heritage building: The IPSTA building housing the pepper exchange has become a tourist attraction. (Photo: Ajayan/ Mint)

“It’s not pepper but the rent earned from these shops that helps us survive. The exchange may even earn a small profit this year," says M.L. Parekh, president of IPSTA.

The exchange had bought more than 20 computers in 2003 to start online trading but these are not used any more as daily turnover rarely touches 100 tonne.

Parekh blames the advent of the three national multi-commodity exchanges—Multi Commodity Exchange (MCX), National Commodities and Derivatives Exchange (NCDEX) and National Multi-Commodity Exchange (NMCE)—that came into existence in 2003 for the sorry state of affairs at IPSTA exchange.

“We were an exchange for only a single commodity— pepper. The multi-commodity exchanges trade pepper and other commodities and traders have all moved out of IPSTA," he says.

The average daily turnover of pepper futures trade at the multi-commodity exchanges is more than 10,000 tonne. But even in its hey day, the IPSTA exchange did not cross 750 tonnes turnover a day, according to Kishor Shamji, a former president of the exchange.

It’s proximity to the Kochi port made Mattancherry a hub for spice trade. Spice traders from Kutch and other parts of Gujarat came down to the southern state in 19th century and settled down in Mattancherry. Increasing overseas demand for pepper from the US and Europe prompted these traders to form IPSTA.

It got government clearance under the Forward Markets Regulation Act of 1952 to start futures trade in 1957.

V.M. Patel, Valabhdas Mariwala and Shamji Narshi, the founders of this exchange, have all died over the years.

“It was an exchange that the world pepper trade looked up to. The price at which pepper was traded in this exchange decided the movement at the global market," says Shamji.

Members of this exchange had to pay margins up front as guarantee for the trade done daily and the delivery system at the end of the monthly contracts was smooth. These norms and the emphasis on quality control had made the exchange a model for others and even the regulator, Forward Markets Commission (FMC), used to look up the exchange to implement any new programme, says Parekh.

T. Vidyasagar, another former president of the exchange, however, feels all is not yet lost. “A marketing effort of its international initiative can bring about a sea change," says Vidyasagar, during whose term Queen Elizabeth II of England visited the exchange when she came to Kochi in 1997.

It was in 1996 that the exchange put in place an international division, called the International Commodity Exchange (ICE), based on a study by the United Nations Conference on Trade and Development (Unctad).

Plans were to have dollar-denominated trade on the exchange involving international players. A separate clearing house, First Commodities Clearing Corp. of India was set up to settle trading accounts, oversee deliveries at the end of each contract, and collect margin money for ICE. The exchange tied with a few commercial banks to become partners in the clearing house but the venture never took off.

After this misadventure, IPSTA planned to launch online trade but faced stiff opposition from a section of the traders. Some of the brokers even went on a strike in 2002 when the proposal was about to be implemented.

Finally, it managed to launch online trade in 2003 in a very small scale but, by then, most of the 180 members in the exchange had shifted their trading activities to multi-commodity exchanges.

Another initiative of the exchange in 2004 to introduce futures trade in rubber did not find any taker. FMC now wants to cancel its licence to trade rubber as there has been no trade till date. IPSTA’s trade guarantee fund of around Rs1 crore, set up to take care of any default in payments, has also been lying idle.

Attempts have been made by various national exchanges to tie up with IPSTA.

For instance, MCX wanted to forge an alliance in 2005 to ensure that members of both the exchanges could trade on each other’s platform, but it did not go beyond the paper work, says Shamji.

Ahmedabad-based NMCE, which bought Rs7 lakh worth of IPSTA stake in the clearing corporation two years ago, has held talks with the exchange for acquiring a stake but members have resisted overtures.

Shamji says active trades by at least the directors and a few members can breathe life into the dying exchange. He also thinks IPSTA can set up a warehouse that can be used by the traders. Vidyasagar says ICE, the exchange’s international arm, should be used to promote the exchange.

According to FMC chairman B.C. Khatua, exchanges such as IPSTA should go beyond pepper and opt for trading other spices such as cardamom, turmeric, chilli, etc. But so far, no such initiative has been taken. Meanwhile, cost-cutting through staff reduction, power and telephone bills, and rental income are what’s keeping the exchange alive.

M.A. Thomas, executive officer at IPSTA, notes the exchange building has also become a tourist attraction, particularly for overseas visitors. However, there are no plans to charge for such visits.