KARACHI: The government should allow cotton hedge trading in the country through Karachi Cotton Association (KCA), said KCA Senior Member Ghulam Rabbani on Sunday.
Hedge trading helps economy by providing a cover against the risk of fluctuations in price, thereby facilitating smooth flow of national and international trading in cotton, he added.
This system will increase liquidity prospects besides benefiting weak stakeholders.
The Shariat Court in Islamabad on petitions by All Pakistan Textile Mills Association (APTMA) and Pakistan Cotton Ginners Association (PCGA), on May 27, 2010 granted six months to stakeholders for comments whether hedge trading should be started at Karachi Cotton Exchange (KCE) and is not against the Islamic laws.
The Karachi Cotton Exchange (KCE) used to perform this since 1934, but trading was stopped in 1976 by Zulfikar Ali Bhutto.
KCE is the member of the International Cotton Association that is the world’s leading international cotton trade association and arbitral body.
Hedge trading is a special segment of trade. The utility of hedge trading in cotton has been re-affirmed by three Cotton Hedge Enquiry Committees set up by the government in 1953, 1965 and 1971.
Cotton and allied cotton products account for about 67 percent of the country’s export earnings, he added.
Country has been facing production shortfall for the last many years and crop season 2016, March-end 2017 would witness around 3.5 million drop in production to around 10 million bales of cotton, Shakeel Ahmad, chief of Sindh Agriculture Forum said.
Following the nationalisation of ginning factories and establishment of Cotton Export Corporation of Pakistan in the public sector in ZA Bhutto’s regime, the hedge trading in cotton was suspended by an administrative order of the government of Pakistan in 1976.
In case of resumption of hedge trading in cotton, it could only be resumed on the floor of KCE.
The APTMA and PCGA have always been opposing the opening of cotton hedge trading from any other forum except on KCE floor, as no one in the country is recognised and capable of doing this job.