Indian Tea Markets : From OTC Trading to Exchange-Based Electronic Order Matching Trading System

Domestic tea markets need an efficient and transparent trading platform for the benefit of its producers. In this context, the present paper performs cointegration analysis between domestic and international auction prices, and also among domestic auction prices, using monthly data and residual-based cointegration and error correction model. The results indicate that cointegrated domestic and international as well as domestic tea auction prices do correct short-run disequilibrium towards long-run equilibrium. Similar result holds for tea export against forward contracts and exchange rate. Further, based on these results, the paper tries to convey the importance of exchange-based electronic order matching, considering the lacuna with Over-The-Counter (OTC) derivatives trading