Pakistani Organizations Seek to Establish Cotton Hedge Trading

Two Pakistani organizations — the Karachi Cotton Association (KCA) and the National Commodity Exchange Limited (NCEL) — are teaming up in an attempt to start cotton hedge trading. NCEL would benefit from KCA’s experience in cotton trading, while KCA would benefit from an increase in revenue from the Karachi Cotton Exchange (KCE).

After being petitioned by the All Pakistan Textile Mills Association and the Pakistan Cotton Ginners Association in May, the Shariat Court in Islamabad granted a six-month period for discussion about whether hedge trading should be allowed on the KCE floor and whether hedge trading was against Islamic law. KCE is a member of the International Cotton Association, which protects the interests of cotton traders through arbitration decisions that are enforceable under international law.

Hedge trading was permitted on the floor of the KCE from 1943 through 1976, when the government suspended the practice following the nationalization of ginning factories and the creation of the Cotton Export Corporation of Pakistan. Cotton Hedge Enquiry Committees were established by the government in 1953, 1965 and 1971, with each reaffirming the utility of cotton hedge trading as a way to protect against wild price fluctuations.