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Thursday, December 14th, 2017

Karachi Cotton Association strongly opposed the decision of the decision of Securities and Exchange Commission of Pakistan

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Karachi: The Executive Committee of the KCA in its meeting held on 24-05-2011 strongly opposed the decision of the SECP regarding grant of approval to the Pakistan Mercantile Exchange Limited (PMEX) for introduction of Futures Trading in Cotton as the same decision has been taken without adequate consultation with the stakeholders of the cotton economy i.e. the KCA, APTMA, PCGA, FAP and PCF.

It was observed that ostensibly PMEX International Futures Contract is based on the NY Cotton Futures Contract and is a cash settled contract, that is delivery is not contemplated.

It is claimed that this contract will 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 the local cotton. This is an apparent anomaly as both claims are contradictory.

It is also interesting to note that US cotton comprises only about 15% of the world crop and only US cotton is tender able in NY Futures Contract. Hence it is not understandable how NY Futures Market will 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 will might yield benefit to the Stock Exchanges who own 41 % of the shares in PMEX but will destroy the farmers, ginners and the users of raw cotton. Cotton and cotton products contribute 60% of the total exports of Pakistan and such experiments may well destroy the whole economy of Pakistan.

The Executive Committee also noted that realizing the need, utility, benefits and advantages of Hedge Trading in Cotton, the Federal Cabinet in its meeting held on 24-03-2005 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.

The Executive Committee further noted with great concern that instead of granting approval to resume Hedge Trading in Cotton under the aegis of the KCA, the Government has allowed to introduce Futures Trading in Cotton at the PMEX due to some mysterious reasons to provide benefits to the vested interests. It was observed by the Executive Committee that the decision of the SECP to allow Futures Trading in Cotton at PMEX contradicts the decision of Federal Cabinet referred to above.

The Executive Committee urged upon the Government to order an enquiry into this spurious decision and to suspend the Notification issued for introduction of Futures Trading in Cotton at the PMEX in order to discourage speculations, gambling and voyeurism in the Cotton Market and safeguard the interest of cotton economy as well as national interest.

For more information, contact:
Yunus Husain Khan
Acting Secretary General
The Karachi Cotton Association

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