Cotton futures trading at PMEX: KCA demands probe against SECP approval

The Karachi Cotton Association has noted with great consternation that the SECP has granted approval to Pakistan Mercantile Exchange Limited (PMEX) for introduction futures trading in cotton. It would be pertinent to point out that hedge trading in cotton was functioning since 1934 under the aegis of the Karachi Cotton Association (KCA).
Following the nationalisation of export trade and establishment of Cotton Export Corporation of Pakistan in the public sector and also subsequent nationalisation of the ginning industry, the hedge trading in cotton was suspended by an administrative order of the government of Pakistan in 1976. The KCA has been advocating for a long time for resumption of hedge trading in raw cotton under the aegis of KCA. KCA has operated the hedge market since 1934 until suspension in 1976 and has the necessary expertise and infrastructure to operate hedge market. Furthermore, the Cabinet of the government had decided in 2005 that the hedge market in raw cotton may resume at the KCA. Unfortunately, this was not notified due to vested interests.
The Futures Contracts envisaged in the press release issued by the SECP does not involve physical delivery of raw cotton and only involves cash settled futures contracts. The KCA fears that this will encourage speculations, gambling and voyeurism thereby causing large-scale volatility in the prices of raw cotton, which is the major raw material of the textile industry which contributes about 60 percent to the exports of Pakistan. An attempt to encourage speculation in this commodity would destroy the exports as well as the textile industry in Pakistan.
It must be noted that the Futures Contracts has been opened under the aegis of PMEX without taking into confidence of all stakeholders as the KCA, Aptma, PCGA, FAP and Pakistan Cotton Forum. Due to some mysterious reasons this backdoor move has been made without adequate consultation with the other stakeholders.
We appeal to the President, the Prime Minister and the Ministers of Commerce, Textile Industry and Food & Agriculture to kindly order an inquiry into this spurious decision and to suspend the notification until all stakeholders are consulted.-PR