The issue to restore futures in cotton through hedge market is in limelight these days. Cotton stockholders and interested groups are conducting meetings and deliberation in this regard.

The Karachi Cotton Association (KCA), being the mother of hedge market wants restoration under its aegis, while the other trade groups want it under the National Commodity Exchange (NCE).

The KCA has wide experience in operation of hedge market, infrastructure facilities, well updated bye-laws, owns a building, holds good reputation and represents all stakeholders which make its case very strong for restoration of hedge market under its control.

The most important technical points in favour is the designation of all ginning factories as cotton delivery points for tenders. Reportedly the procedure of operation of hedge market under the National Commodity Exchange has no provision for physical delivery of cotton but only settlement of bargains.

The National Commodity Exchange was expected to start its operations by December last year but owing to some problems, including the membership and lack of basic infrastructure delayed its opening.

"The opening will be modest but its operations will be extended to many commodities, including some imported ones to ensure easy and competitive supplies to local consumers", a source at the Commodity Exchange said.

Its high-ups also offered membership to the KCA, but the KCA refused on the ground that it is "the mother of hedge trading since 1933, when it was set-up by no less a person than Mahatma Gandhi.

The KCA high-ups are of the opinion that if hedge trading is to be resumed in cotton after more then three decades it is their right and first option should be given to the KCA as it has both the ring-hall and the needed expertize to ensure smooth operations.

Does it look strange that the mother is being denied the reunion of a legitimate child", a leading broker who has seen hay days of hedge trading on the Karachi Cotton Exchange jokingly said.

The present government has been taking pragmatic decisions both on financial and trade sectors and should have some rethinking on the issue and allow the KCA to resume forward trading under its control.

A financially strong trade group which is reportedly holding a lot of idle money is very much interested in opening the cotton hedge market under the National Commodity Exchange and is motivating ginners and brokers to join it.

This move has increased the value of broker's licence by more then 400 per cent to around one million rupees in a few months. Let the National Commodity Exchange operate in other commodities leaving cotton alone to the KCA as it is their domain, the Karachi Cotton Brokers Association chief said.

But high-ups of the KCA, being the chief exponents of hedge trading, even before independence, have all along been protesting against the Securities and Exchange Commission of Pakistan (SECP) to allow it to start forward trading in commodities including cotton, gold and some other primary commodities as it is its inherent right.

The KCA bosses have been trying to restore hedge trading in cotton. It was banned by the first Bhutto regime in 1975 but their requests have since been turned down on various counts. The chief reason behind the denial of this facility to the cotton trade, which benefits both the spinner and the grower and ensures price stability is the ruling that hedge trading is an un-Islamic mode of trading.

The Islamic Ideology Council finding was that the transactions of billions of rupees are finalized without giving or taking possession of the commodity in trade and that is un-Islamic.

And since then successive governments, from early 80s rejected the KCA presentation on the issue under the ruling of the Islamic Ideology Council. The KCA has the right to ask those who gave permission and allowed hedge trading to the newly set up National Commodity Exchange if one thing is un-Islamic for the KCA why the same is Islamic for the commodity exchange.

"The Karachi Stock Exchange has already resumed forward trading in a dozen shares after an identical ban about the same time but the KCA has been denied the same facility for unknown reasons, says a KCA member.

As to the viability of futures trading in cotton, one version is that Pakistan should produce 25 per cent surplus for the restoration of futures trading, while the other group is of the opinion it would ensure smooth supply to buyers, spinners and will save the operators against high risk of price fluctuations and would discourage the system of procurement of lint cotton by spinners on credit.

Some three years back, futures trading in cotton was restored in Mumbai (India) under the East India Cotton Association, Mumbai, but the system is not operating as was desired. The volume of business is reported quite low despite many facilities to the operators.

India, like Pakistan, is not even self-sufficient in cotton and relies on imports to meet domestic requirements. Growers got an all-time high price of phutti during the current season partly because of a short crop, followed by a late pest attack, but the textile sector has been at the receiving end as lint prices rose to an abnormally high level.

Had there been hedge trading, price manipulation by vested interest should have been in check and all sectors of cotton economy should have been benefited, the KCA sources said.

The Textile sector alone earns about 65 per cent of the total foreign exchange for the country and erratic local prices put negative impact on its export competitiveness and the consequent loss of foreign exchange.

The ministry of commerce needs to reevaluate the issue of hedge trading in the light of objective conditions and take a decision which benefits the entire cotton economy before it goes to some other quarter.