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Pakistan to introduce ETDs

A committee formed by the SECP has presented its feasibility report over the issue that sought adequate legal, regulatory and governance infrastructure and oversight.

"It is essential that the current futures contract at Karachi Stock Exchange be brought into conformity with International Best Practices (IBP) both in its design and the environment in which it is traded. Similarly, as new derivative products are introduced it should be ensured that these too are in accordance with IBP," the report observes.

The feasibility report has accommodated the experience of four emerging markets — Korea, Malaysia, Brazil and India — which reveals that innovation and growth in derivatives activity over the past 15 years has yielded substantial benefits in terms of market expansion and overall economic growth.

ETDs have facilitated access of businesses to international capital markets, lowering their cost of funds and diversifying their funding sources. Thus derivatives have improved the competitive position of firms in an increasingly competitive global economy, the commission maintains.

The report shows that despite phenomenal growth, Pakistani capital market has recently witnessed extra-ordinary volatility and is today one of the most volatile markets in the world. Following periodic crashes at KSE a number of investigations were carried out.

The committee has also asked for a functional risk management framework and independent market and member surveillance.