ISLAMABAD, May 24: The International Cotton Futures Contract (ICOTTON) listed at the Pakistan Mercantile Exchange Ltd (PMEX) is a futures trade and not hedge trading, clarified the Securities and Exchange Commission of Pakistan (SECP) on Friday.

In a statement issued by the corporate sector regulator, it was stated that ‘hedge trading’ has remained a domain of Karachi Cotton Association for years and it pertains to forward contracts, whereas ICOTTON is a futures contract, both of which significantly vary in terms of their operations and dynamics.

“The forward contracts are bilateral, non-standardised contracts whereas futures contracts are standardised, exchange-traded contracts, which are cleared and settled at the exchange,” the spokesman of the commission has said.

The SECP, taking note of opposition by the KCA against futures trade in PMEX, said: “The KCA has mixed forward trading with the futures contracts.”

The SECP said that the allegation made by the KCA against futures trade in PMEX was unjustified and factually incorrect.

“The fact is that the ICOTTON contract was listed at the PMEX after unanimous agreement between the SECP, PMEX and KCA on January 16, 2013,” the spokesman of the SECP said.

“The accusation by the KCA that ICOTTON listed at the PMEX was introduced without adequate consultation with industry stakeholders is incorrect,” he added.

“The KCA are unaware of futures trade and its members were undermining this mode of trade with speculative terms and some were even calling the futures trade in cotton as gambling.

The SECP said that the ICOTTON in cotton market will benefit to all stake holders including the farmers, ginners, and the consumers of raw cotton.

It said that the ICOTTON is a replica of the Cotton Futures Contract listed at the Intercontinental Exchange (ICE) with a mere exception that ICOTTON is cash-settled whereas the ICE Cotton Futures Contract is delivery-based.

All other parameters including its pricing are based on the ICE Cotton Futures contract.

“The price of ICOTTON contract is internationally fed and, therefore, has no bearing on the local cotton prices in Pakistan,” the spokesman added.

“KCA’s fear about ICOTTON contract that it can potentially destroy the stakeholders, including farmers and ginners is superfluous, unfounded and based on lack of experience,” he summed up.