The Karachi Cotton Association (KCA) has opposed the decision of the SECP regarding grant of approval to Pakistan Mercantile Exchange Limited (PMEX) for introduction of futures trading in cotton, saying that the decision has been taken without adequate consultation with the stakeholders of the cotton economy, including KCA, Aptma, PCGA, FAP and PCF.
The KCA in its press release observed on Saturday that ostensibly PMEX International Futures Contract is based on NY Cotton Futures Contract and is a cash-settled contract, that is delivery is not contemplated. The executive committee of KCA said that PMEX has claimed that this contract would provide hedging facility for all those who are involved in the various activities in the cotton value chain.
At the same time, PMEX states in its own papers that trading is not based on local cotton. This is an apparent anomaly, as both claims are contradictory. The KCA further said that it is also interesting to note that US cotton comprises only about 15 percent of the world crop and only US cotton is tenderable in NY Futures Contract. Hence, it is not understandable how NY futures market would provide any kind of risk mitigation for Pakistan. PMEX claims that their contract is based on NY Futures Contract.
However, this is another anomaly as NY Futures is a deliverable contract whereas PMEX contract does not involve physical delivery. Furthermore, it must be noted that cotton surplus advanced economies as Australia, Brazil and India have yet to introduce NY Futures Contract whereas PMEX in its wisdom has decided to introduce this contract in a cotton-deficit country.
Apparently, this is merely an attempt to allow speculation and gambling in the cotton market, which might yield benefit to the stock exchanges which own 41 percent of the shares in PMEX but would destroy the farmers, ginners and the users of raw cotton. Cotton and cotton products contribute 60 percent of total exports of Pakistan and such experiments may well destroy the whole economy of Pakistan, KCA said. The executive committee of KCA also noted that realising the need, utility, benefits and advantages of hedge trading in cotton, the Federal Cabinet in its meeting held on 24-3-2005 had decided to resume hedge trading in cotton under the aegis of the KCA. However, necessary notification of the government in this regard has not yet been issued due to vested interests.-PR
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