ISLAMABAD, May 16: The Securities and Exchange Commission of Pakistan (SECP) has approved in principle two major schemes — registration of an exchange for trading in commodity futures contracts and over-the-counter (OTC) trading of shares of small companies.

Chairman SECP Khalid A. Mirza told a news conference here on Thursday that the national commodity exchange limited (NCEL) had applied to SECP for grant of registration as an exchange, providing facilities for dealings in futures contracts for commodities.

He said that an SECP meeting held hearing of the application. The hearing was attended by representatives of NCEL, the three stock exchanges, Karachi Cotton Association, Agriculture Development Bank of Pakistan (ADBP) and several trade associations and institutions.

“The commission after giving due consideration to the view points expressed in the hearing and having been satisfied with the experience and financial soundness of the sponsors and the availability of requisite infrastructure and proper risk management framework, has decided in principle to grant approval for registration of NCEL under Securities and Exchange Commission Ordinance 1969 as an exchange in commodity futures contracts subject to certain terms and conditions,” said the SECP chairman.

He said that Karachi Stock Exchange had 40 per cent shares in the NCEL while remaining shares were owned by Lahore and Islamabad stock exchanges besides Agricultural Development Bank of Pakistan and Asian Development Bank.

The exchange would be fully operational by September this year, and till then the SECP would finalize rules and regulations governing the futures contracts. He said futures contracts of gold, cotton, rice, etc., expected to be traded, would require prior definition.

He said that every kind of commodity futures contracts to be traded on the exchange would require specific approval by the SECP. The SECP would consult all relevant parties and stakeholders before approving a futures contract in respect of any commodity for trading on the exchange.

He believed that the emergence of trading in futures contracts in commodities would provide investors and stakeholders with basic hedging instruments, enable economic players to lock in costs and would also help stimulate the investment climate in the country.

In view of the sensitivity of futures contracts, the SECP head said that clearing house and the regulator would know that who was dealing with such and such commodity and hence restrict the chances of market manipulation by a few players.

Khalid Mirza said that in principle approval has also been given for over-the-counter (OTC) trading in the Karachi stock exchange where shares of big companies would be traded separately and those of smaller companies would be traded over the counter for qualitative dispensation of the market.