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The cotton-industry body tasked with setting the rules for much of the global cotton trade has signed an agreement with China's cotton exchange aimed at stemming contract defaults in the world's top consumer of the fiber. The Liverpool-based International Cotton Organization said Tuesday that it signed a memorandum of understanding with the China National Cotton Exchange, the platform that sells from China's state-controlled reserves. Under the agreement, the two groups would work toward applying ICA rules to the electronic trading platform of China's exchange, the ICA said. "This collaboration will promote good trading practices and lead to a better understanding of the trading rules and contract sanctity," former ICA President Ahmed Elbosaty was quoted as saying in a news release from the ICA. Scores of textile mills canceled cotton contracts in 2011 when prices for the fiber jumped to a record $2.27 a pound and then dropped.

The price swings hurt balance sheets at some of the world's largest cotton merchants, such as Olam International Ltd. (O32.SG) , Noble Group Ltd. (N21.SG) and Glencore International. While the peak in cotton prices was two and a half years ago, requests to ICA for arbitration have continued as mills worked through stockpiles of high-priced fiber bought months in advance. Last year, there was a record 247 requests for arbitration; in the first half of 2013, there were 52. Source: http://online.wsj.com