Cotton dealers for resumption of hedge trading

KARACHI: Cotton traders on Thursday urged the government to restore hedge trading at the Pakistan Mercantile Exchange (PMEX) in order to discourage market speculations.

“We ask the policymakers to resume hedge trading at the cotton exchange under aegis of the Karachi Cotton Association (KCA) as it has full infrastructure, comprehensive by-laws and skilled manpower,” said Naseem Usman, chairman at the Karachi Cotton Brokers Forum (KCBF), in budget proposals for 2016/17.

Usman also said the federal cabinet in 2005 decided to grant permission to brokers for the recommencement of hedge trading contracts. However, he added that till date no notification has been issued so far.     

The future trading, which involves physical delivery of cotton, was introduced in 1934 and effectively managed by the KCA until 1976.  However, it was suspended in 1976 by the then government following the nationalisation of export trade and ginning factories.

KCBF chief said cotton future trading, as allowed by the Securities and Exchange Commission of Pakistan at the PMEX, does not involve physical delivery of cotton, which is a serious shortcoming.

PMEX international futures contract is based on the NY cotton futures contract and cash-settled contract, where delivery is not contemplated.

The KCBF also said free trading in cotton should be continued, which safeguards the interests of all the stakeholders including the growers.

“Since Pakistan is one of the major buyers of Indian cotton, so to promote the interest of trade, more entry points at Pakistan-India border should be established for smooth flow of cotton,” it said.

The forum also urged the government to keep buffer stocks of cotton of at least two million bales to meet the requirement of local textile industry. “This arrangement should be made through private sector under the KCA. This should be purchased and sold through the 320 licensed cotton brokers.”