KARACHI, May 18: The National Commodity Exchange Limited (NCEL) has a total of 258 members, out of which 253 are for universal membership and five for gold specific. The exchange had received 296 applications for membership, which included members of Karachi Cotton Association, money changers, members of the stock exchanges, commodity traders, manufacturers, members of the Karachi Bullion Exchange, etc. Applications were invited by placing advertisements in the national press in September 2002.
“We have 60 more applications in hand – 30 for gold specific, including those from Sarafa Bazaars and 30 from other commodities. Currently, there is a ban on memberships but applications will be considered by the board as soon as the ban on membership is lifted,” Managing Director NCEL Assim Jang told Dawn on Friday.
NCEL is a de-mutualised exchange with no cap on number of membership. There is an understanding with SECP that new memberships will be opened shortly as soon as NCEL board has agreed on the rules governing new membership, he added.
Since the launch on May 11, more brokers are trying to activate their membership and participating in trading. Value of futures traded has been increasing every day. All systems, including real-time funds transfers using MCB Virtual Banking Interface have worked seamlessly through the initial soft launch period.
Brokers are receiving increasing queries from clients every day, most of whom have now an easy way of taking exposure in gold for the first time, he said.
He rejected reports of pressurizing gold traders in becoming member of the NCEL, especially from Sarafa Bazaar, saying that NCEL is a futures exchange and Sarafa Bazaar is a spot market and hence they are not substitutes for each other.
The NCEL is only bringing to Pakistan what has been missing so far, “a futures exchange.” It has no purpose or intent of shifting trading from Sarafa Bazaar.
NCEL uses technology to provide equal access to everyone across Pakistan to take exposure to internationally traded gold prices, regardless of their size or location. This is the first time that investors can take exposure to an internationally traded commodity, but in rupees and from the comfort of their own homes.
Success of this venture will allow Pakistani users to hedge and take exposure in other internationally traded commodities as well. Gold is a global commodity, traded round-the-clock across all time zones and is not the property of any select group, who have monopoly in determining trading rights on it, the MD NCEL said.
On impact of local gold prices through NCEL trading, Assim said the biggest difference will be observable for retail consumers, who currently face huge bid/offer spreads of up to 30 per cent when trading bullion through local outfits.
NCEL trading platform brings all traders, large and small, to one central, national-level market where prices are determined fairly and no one has an advantage over another.
When asked that majority of the NCEL members are stock brokers, who can manipulate and overwhelm the exchange, he said, “It is true that majority of current members are stockbrokers but it is not possible for them to manipulate and overwhelm the exchange.”
He added that this is because NCEL is run as any standard futures exchange in the world with emphasis on position limits, surveillance, market monitoring and risk management through numerous other measures. For its own survival and integrity, the exchange will not allow any broker, or group of brokers, to manipulate the market.
Besides, it is impossible for anyone to manipulate a market like gold, which is international in nature and investors in Pakistan will always be followers of global prices.
To a query over justification of NCEL in presence of two decades’ old exchanges - bullion and cotton exchanges – he said the NCEL is a futures exchange. Other exchanges are for physical spot trading. The two are completely different.
NCEL has been set up to provide futures trading on many more commodities and instruments, and not just two. “If the above two exchanges had fulfilled the genuine futures trading and hedging needs of all Pakistanis then there would have been no need for NCEL to propose futures trading in these two commodities,” he added.
On cotton traders’ reservation on trading in the exchange, he said cotton was also being traded at the two Indian commodity exchanges and at the Shanghai Futures Exchange successfully. NCEL has tried on numerous occasions to offer its services to the Cotton Exchange. It has also proposed that cotton futures trading be done on the Cotton Exchange and NCEL can help in setting up the necessary infrastructure.
To date, the NCEL has not had any positive response to these suggestions, nor there has been any attempt to enter a dialogue. In the meantime, Pakistan’s cotton farming and textile industry is suffering due to lack of any futures contracts.
NCEL has many other products in a long pipeline ready for trading and will concentrate on these products, while there is opposition from cotton stakeholders.
He said more than 70 commodity exchanges exist around the world, out of which more than 30 are in Asia alone. All of Pakistan’s neighbours, except Afghanistan, have multiple futures exchanges. Commodity exchanges have always led to greater efficiencies in agriculture, and business and have benefited majority of the population over a period of time.
When asked that the majority of traders and even general public have no knowledge about the NCEL's functioning, he said futures trading are not suitable for all, especially individual investors. It is leveraged trading and investors can lose more money than they can afford.
NCEL considers its social responsibility to introduce futures trading in a controlled environment, which will restrict any exuberant behavior from novice investors.
NCEL is still in a soft launch mode and as brokers get more comfortable with the mechanics of futures trading they will slowly allow their sophisticated investors to enter the market. NCEL has been live for only a week so far and trading is only happening in gold futures.
Chairman Karachi Wholesale Grocers Association (KWGA) Anis Majeed said majority of commodity traders were not aware of NCEL despite the fact that such kind of exchanges exist worldwide and they have proved beneficiary to the trade.
“It is a good step but how the NCEL will contain and check speculation (satta) as majority of stock market players have entered into commodity and gold trade through NCEL,” he said adding that the stock market is dubbed as a full time “satta market” and then one can assume the NCEL’s future in case stock brokers remain in high majority.” He said.
Akhtar Khan Tessori of Tessori Group said that the NCEL official had contacted him for membership. “I am of opinion that NCEL should give membership to big importers/traders, who are real players and even exporters instead of taking members from stock exchange,” he said.
By including stock exchange members one can assume speculative trading in gold business, he said adding that Sarafa Market players had also expressed their dissatisfaction from the gold trading in NCEL.
President Bullion Exchange Haji Mohamamd Farooq said that he had heard from the market that one or two people from Bullion Exchange had applied for NCEL’s membership and “we cannot stop them”. “I think that gold trading in NCEL will be a failure as how NCEL will provide gold on ready stock and even after three months on future trading,” he said. Bullion Exchange deals in ready stocks of yellow metal.
