KARACHI: The Karachi Cotton Association (KCA) has strongly opposed the introduction of International Cotton (ICOTTON) Futures Contracts by the Pakistan Mercantile Exchange Limited (PMEX). In a statement issued here on Wednesday, the KCA said that the decision to introduce the contracts had been taken without adequate consultation with the stakeholders of the cotton industry.
The KCA spokesperson noted that ostensibly, the PMEX ICOTTON Futures Contract is based on the New York (NY) Cotton Futures Contract, but unlike the NY Cotton Futures, is a cash-settled contract, that is, upon expiration the buyer can take the cash position instead of the cotton. Although PMEX claims that this contract will provide hedging facility for all those who are involved in various activities in the cotton value chain, the KCA noted that the Federal Cabinet, realising the need, utility, benefits and advantages of hedge trading in cotton which involves delivery of cotton at the time of maturity of the contract, had decided to resume hedge trading in cotton under the aegis of the KCA in its meeting on March 24 2005. In light of this, the decision by the government to allow the PMEX to introduce International Cotton (ICOTTON) Futures Contract contradicts the decision of Federal Cabinet. It is also interesting to note that cotton from the United States (US) produces only about 15% of the world cotton crop and only US cotton is tenderable in NY Futures Contract. PMEX admits that their contract is based on NY Futures Contract but unlike NY Futures which are deliverable contracts PMEX contracts do not involve physical delivery.
The KCA in its statement said it questioned the decision by PMEX to introduce the contracts in a cotton deficit country when economies as Australia, Brazil and India with cotton surpluses have yet to introduce NY Futures Contract.
Published in The Express Tribune, May 23rd, 2013.
Like Business on Facebook to stay informed and join in the conversation.
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ