MULTAN,June 3rd: National Commodity Exchange Limited (NCEL) will be liable to face contempt of Shariat Court if it announces hedge trading in cotton unilaterally, All Pakistan Textile Mills Association (APTMA) and Pakistan Cotton Ginners Association (PCGA) said on Wednesday.APTMA Vice Chairman (South zone), Saleem Shahzad, said that if hedge trading in cotton recommences, it could only be done on the floor of Karachi Cotton Exchange (KCE).On May 27 2010, the Shariat Court in Islamabad, on petitions by APTMA and PCGA, had granted six months period to stakeholders for comments whether hedge trading should be started at KCE and is against the Islamic laws or not. The APTMA and PCGA opposed the opening of cotton hedge trading.Saleem said cotton marketing involves a tremendous business risk. It was, therefore, necessary that there should be some form of price insurance to reduce the risk of volatile fluctuations in prices. The utility of the hedge trading in cotton has been re-affirmed by three Cotton Hedge Enquiry Committees set up by the Government in 1953, 1965 and 1971.


He said the KCE has full and comprehensive infrastructure and adequate by-laws for hedge trading in cotton, inclusive of storage capacity of cotton bales at Karachi, and 320 licensed cotton brokers who have their own offices at the Cotton Exchange to facilitate trading of cotton with the ginners, spinners and exporters. A PCGA member, Shakeel Ahmad, said NCEL on the other hand, has no by-laws or described procedures to tackle with the hedge trading in cotton. “In case of any default in hedge trading committments, who will take up the responsibility to bear loss or to compensate for the loss”, Ahmad added.He said that KCE is the member of the International Cotton Association (ICA), which is the world’s leading international cotton trade association and arbitral body. He said ICA arbitration awards can be enforced in foreign courts under international law, following an agreement made in New York on 10th June 1958 on the recognition and enforcement of foreign arbitral awards.Internationally recognised in the cotton community, the ICA protects the legitimate interests of all those who trade cotton, whether buyer or seller.Hedge Trading is a special segment of the trade. Hedge trading performs an economic function by providing a cover against the risk of fluctuations in price, thereby facilitating smooth flow of national and international trading in cotton. Cotton and allied cotton products account for about 66 percent of the country’s export earnings, he added. The KCE used to perform hedge trading in cotton since 1934. Following the nationalisation of ginning factories and establishment of Cotton Export Corporation of Pakistan in the public sector, the hedge trading in cotton was suspended by an administrative order of the Government of Pakistan in 1976.Cotton would continue to play a dynamic role in the economy of Pakistan in years to come.