Contents

EXECUTIVE SUMARRY:................................................................................................3
INTRODUCTION TO COMMODITY MARKETS:...............................................................4
Definition of a commodity:......................................................................................4
COMMODITY EXCHANGE:............................................................................................4
Definition of commodity futures:.............................................................................4
Need for future markets:.........................................................................................4
Objectives of commodity futures:...........................................................................5
Benefits of future markets:......................................................................................5
EVOLUTION OF COMMODITY MARKETS:......................................................................7
HISTORY OF COMMODITY MARKET IN PAKISTAN:.......................................................9
INTRODUCTION TO NCEL:...........................................................................................9
VISION AND MISSION:.................................................................................................9
OBJECTIVES:.............................................................................................................10
THE PRODUCTS OF NCEL:.........................................................................................11
RICE:......................................................................................................................11
PALM OIL:..............................................................................................................11
GOLD:....................................................................................................................11
SILVER:..................................................................................................................11
CRUDE OIL:............................................................................................................11
INTEREST RATES:..................................................................................................11
INTERNATIONAL COMMODITYEXCHANGES:..............................................................12
The New York Mercantile Exchange (NYMEX):.......................................................12
London Metal Exchange:.......................................................................................12
CBOT:....................................................................................................................12
Tokyo Commodity Exchange: (TOCOM):................................................................12
Chicago Mercantile Exchange:..............................................................................13
THE FUNCTIONING OF COMMODITY MARKETS:.........................................................14
Steps of Commodity Trading System:...................................................................15
HOW TO INVEST IN A NCEL:......................................................................................16
RULES AND REGULATIONS:......................................................................................16
Broker:..................................................................................................................16

1
 System Audit:........................................................................................................20
CURRENT SCENARIO OF NCEL:.................................................................................31
Technical set up:...................................................................................................31
Benefits to the Economy:......................................................................................31
CONCLUSION:...........................................................................................................33
RECOMMENDATIONS:...............................................................................................33
RECOMMENDATIONS:

EXECUTIVE SUMARRY:
Commodities are a center of concentration for last two decades. The population is
increasing and the demand for the commodities ever increasing because of the
increase in the demand. The emergence of open market system has exposed the
commodities to the price fluctuations. The emerging economies like the central Asian

2
and south Asian countries are consuming the commodities and hence the commodity
market is much larger than the stock markets all over the world. Another reason for the
growth of the commodity futures is; less regulations and capital requirements for
investment in derivatives market.

Pakistan is one of the biggest producers of commodities like, rice and cotton. Pakistan
also possesses large markets for the precious metals and gemstones. 130 tons of gold
is traded on average every year in Pakistan. The agricultural and textile sector has been
facing many business risks in the growing economy of Pakistan. The need for the risk
management has been fulfilled by the establishment of NCEL in the country. Lead by
the technical assistance of the KSE the NCEL has attracted investments in many
commodities futures as it has provided a centralized and regulated market for the
commodities to be traded with transparency. The price discovery has helped the
investors to make production and investment decisions and many individuals have
profited from price speculations.

The formal commodity market is new in Pakistan, so there is a need to benchmark the
rules and regulations according to the leading mercantile exchanges like the Chicago
mercantile and Tokyo commodity exchange. More and more commodities like steel and
some non ferrous metals, sugar and sugarcane, wheat and gemstones should also be
introduced on the exchange. Along with the futures the options contracts on the
commodities can also increase the trade volume of the commodities.

INTRODUCTION TO COMMODITY MARKETS:

Definition of a commodity:
“Any product that can be used for commerce or an article of commerce which is traded
on an authorized commodity exchange is known as commodity.”

Anything which is moveable, transferable and usable is a commodity. Commodities

include all types of goods but money, and financial instruments are an exception. All the
goods and agricultural products, minerals and fossils are allowed to be traded on most

3
of the commodity exchanges through out the world. The precious metals like gold and
silver and some other metals like copper an bronze are also traded on the commodity
exchanges. Cereals, pulses, grains, cotton and cotton products, jute and jute products,
vegetable and fruit seeds, oil seeds, sugar, tea, coffee, vegetables and fruits and spices
are also traded on commodity exchanges.

COMMODITY EXCHANGE:
“A commodity exchange is an association or a company or any other body corporate
organizing futures trading in commodities for which license has been granted by
regulating authority.”

Definition of commodity futures:

“A Commodity futures is an agreement between two parties to buy or sell a specified
and standardized quantity of a commodity at a certain time in future at a price agreed
upon at the time of entering into the contract on the commodity futures exchange.”

Need for future markets:

A major reason for the need of the futures market is its ability to perform hedging
function. Heeding is defined as the transferring the risk of future losses from risk neutral
to risk takers on a minimum cost. The commodity futures also carry some risk like any
other financial instrument. This risk is due to the volatility in the prices.

The reasons for the price volatility are:

• Consumer Preferences:

With the passage of time the consumers’ choices change and their preferences
as well, so the demand for one commodity falls where as the demand of another
commodity rise. This shift in demand curve causes the prices of one commodity
to fall and the prices of the other to rise. But this shift in demand is a slow
process and it gives time to the manufacturers and the sellers of the commodities
to adjust their products according to the demand. Hence, the effect of the
consumer preferences on the price volatility of commodities is lesser in the short
term.

• Changes in supply:

Weather plays an important role in the production and supply of the agricultural
commodities. Whenever there is a bad effect of weather on the crops and the
supply of a commodity decreases, its prices jump up. But futures market has
decreased the disastrous effects of these price fluctuations through hedging.

4
Objectives of commodity futures:
• Its most important objective is to hedge the risk related to the possession of any
physical asset. Any adverse movement in the price of the physical asset
possessed by a seller can cause him heavy losses. But, the futures give an
opportunity to hedge that type of associated risks.
• To help the investors better allocate their resources and reduce the inventor
requirements. The investors get an idea about the future demand and supply and
keep the inventory accordingly.
• To maintain price stability by providing predictability to about the future prices
and demand and supply.
• To reduce the risk of the investors and make it easier for them to arrange
finances. As the future trading leads to predictability of the prices, demand and
supply so the risk decrease and the financial institutions finance the commodity
producers.

Benefits of future markets:

• Price discovery:

The market information, demand and supply equilibrium, weather forecasts,

buyers’ and sellers’ behavior, government policies, rules and regulations and
inflation rates are the inputs of the futures markets. This whole procedure of
future trading along with the above mentioned inputs creates a mechanism of
continuous price discovery. The trade volumes between the parties assess the
fair values and the information immediately spreads on the trading floors.

• Price risk management:

Price risk is inherent in the business of spot markets. The farmers, processors,
merchandisers, exporters and importers etc can hedge this risk by taking an
equal but opposite position in the future market.

• Import export competitiveness:

For the exporters, the purchase made from the physical market can expose them
to the price risk and the risk of the possession of the commodities if the
commodity is perishable. The future markets can help the exporters to hedge the
proposed purchase by temporarily substituting for the actual physical purchase
until the right time arrives.

• Predictable pricing:

To maintain the stability in prices the sellers need to heavily invest in the
inventory reserves and maintain the supply. They do this to avoid the short term

5
 price fluctuations in the prices. With the help of futures markets they can maintain
the supply just by locking the purchase of a particular commodity on a particular
price on a future date. This cost them just the price for the future contract and not
for the inventory to be held itself. The investors can use the money for other
profitable investment options.

• Benefits for the farmers:

To avoid the price fluctuations the farmers stock the seeds for the future crops.
They also stock the grains for future sales. But this exposes them to the risk of
loss if the reserved commodities perish or a parasite attacks their agricultural
reserves. The futures markets can help them to avoid these losses. The price
predictability of the futures trading also help the farmers to take the production
decisions. They can decide from the prices how much, when and what to
produce.

• Credit accessibility:

Without futures hedging the processing and marketing of the commodities is a

risky business. The adverse effects of weather which are not controllable can
even eat up the profits of the farmers. This behavior of commodity spot markets
did not allow the financial institutions to fund the farmers and traders in the
commodity business. But the futures hedging reduce the risks involved in the
business and therefore the investors have a better access to finances.

• Better product quality:

The exchange always set some quality standards and allow the grading and
pricing of the commodities according to their quality. Hence it gives an incentive
to the producers to improve the quality of their products and compete for the
higher grade in the exchange.

EVOLUTION OF COMMODITY MARKETS:

When the need for the continuous supply of the seasonal crops arouse, the futures
markets were evolved. The history of the commodities exchange lies back to 1848. The
concept of organized trading in the commodities first emerged in CHICAGO in 1848. But
an unorganized type of future trading was found in Japan much before 1848. In Japan
merchants used to store rice in warehouses for future use. To generate cash and to
maintain the warehouses they used to sell the receipts for the rice. Those receipts were
called “the rice tickets”. Later on the rice tickets were accepted as a commercial
currency and rules were established to standardize trading in rice tickets.

6
In 19th century CHICAGO emerged as the business centre of U.S. it attracted the
farmers from the surroundings to sell their wheat in Chicago to the dealers and the
distributors. Due to the lack of storing facilities, uniform weighing and grading facilities,
the farmers were dependant upon the mercy of the dealers. It lead to the need for a
common place for all the farmers and dealers to gather and trade on the rules
uniformity.

Gradually the farmers and the buyers started making commitments for the future
exchange of the commodities for cash and the future contracts were evolved. The
futures contracts allow the buyer to know the price he will be paying for the commodity
on the future. This type of contracts proved beneficial for both the producers and the
buyers. After signing a contract if the buyer is no more interested in the underlying
commodity he was able to sell his right to someone else who is interested and the
producer will be selling his product. Similarly the producers if not interested to produce
can pass on his responsibility of delivering the product to the dealer in the future. The
prices for the contracts were dependant upon the market prices of the underlying
commodity (wheat at that time), hence the name derivative evolved. Latter on by
making some modifications these contracts transformed in to an instrument to protect
involved parties against adverse factors such as unexpected price movements and
unfavorable climatic factors. This promoted traders entry in futures market, which had
no intentions to buy or sell wheat but would purely speculate on price movements in
market to earn profit.

Trading of wheat in the futures market was proved very profitable and it attracted other
commodities as well to the futures exchanges. This created a platform for establishment
of a body to regulate and supervise these contracts and the Chicago Board Of Trade
was established in 1848. In 1870 and 1880s’ many new commodity exchanges
emerged including New York exchange of coffee and cotton. Initially the agricultural
commodities were traded on the commodity exchanges. After 1872 the dairy products
were introduced on the exchanges. In the early 1900s’ some metals and rubber were
introduced. In 1933, during the Great Depression, the Commodity Exchange, Inc. was
established in New York through the merger of four small exchanges – the National
Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange,
and the New York Hide Exchange.

Largest commodity exchange is CBOT and today there are many big and small
commodity exchanges in more than 30 countries of world including South Asian
countries.

7
HISTORY OF COMMODITY MARKET IN PAKISTAN:
In Pakistan the commodity futures market is still not very wide spread. The first
commodity futures exchange; National Commodity Exchange of Pakistan, was
incorporated on April 20, 2002 and it started functioning in the July of the year 2003.
The exchange is the only company to provide a centralized and regulated place for
commodity futures to be traded in Pakistan. It aims to develop a premier Commodity
Exchange not only in Pakistan but also in the region to provide fully automated trading,
settlement and risk management systems complying to the national and the
international standards. Initially the gold was the only trading commodity and the rest of
the commodities; wheat, rice, sugar, cotton yarn, etc were started trading later in
phases. The establishment of the exchange is the continuation of economic policies of
the government to stimulate investment in the country, regulate trading in commodities
and document the national economy.

8
INTRODUCTION TO NCEL:
National Commodity Exchange Limited (NCEL) is the first technology driven,
demutualised, on-line commodity futures exchange in Pakistan. NCEL’s shareholders
are National Bank of Pakistan, Karachi Stock Exchange (the largest shareholder,
holding 40% shares), Lahore Stock Exchange, Islamabad Stock Exchange, Pak Kuwait
Investment Company (Pvt.) Limited and the Zarai Taraqiati Bank Ltd and it is regulated
by Securities and Exchange Commission of Pakistan.

VISION AND MISSION:

FROM TO
Price Distortion Observable prices
Wide spreads or one way quote Narrow spreads and two way quotes
Lack of storage State of the art warehousing
Absence of standardization Quality certification & standardization
Counterparty risk Complete risk mitigation
Impediments in financing Ease in financing
Price manipulation Price dissemination

“To provide an opportunity to the farmers to farm for the market”

OBJECTIVES:
• The objective of the exchange is to establish, conduct, regulate and control the
trade of futures commodity contracts within and outside the country and to
perform all the associated functions to facilitate setup and carry on the business
of chosen commodities. It will also regulate the imports and exports in the
country.

• Its objective is to maintain high standards of commercial honor and integrity, to

promote and inculcate honorable practices and just and equitable principles of
trade. The exchange aims to discourage and suppress malpractices, to settle

9
 and decide points of practice, disputes, questions of usage, custom and courtesy
in the conduct of trade and business.

• One of the most important objectives of the exchange which would have a
positive impact on exports is that it will communicate with the chambers of
commerce and other mercantile and public bodies in and outside the country for
the protection of the commodity trade.

THE PRODUCTS OF NCEL:

RICE:

• NCEL IRRI-6 Weekly Rice Futures Contract

• NCEL IRRI-6 Rice Futures Contract

PALM OIL:

• NCEL Palm Olein Futures Contract

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GOLD:

• NCEL Gold (1 Ounce) Futures Contract

• NCEL 100 Ounces Gold Futures Contract
• NCEL 100 Tola Gold Futures Contract
• NCEL 50 Tola Gold Futures Contract
• NCEL 10 Tola Gold Futures Contract
• NCEL Mini Gold Futures Contract
• NCEL Gold Futures Contract

SILVER:

• NCEL Silver (500 Ounces) Futures Contract

CRUDE OIL:

• NCEL Crude Oil Futures Contract new

INTEREST RATES:

• NCEL 3-Month KIBOR Futures Contract

INTERNATIONAL COMMODITYEXCHANGES:
Commodities markets were evolved as a solution to the problem of maintaining the
supply of the seasonal products like agricultural products. The U.S, Japan, Brazil, U.K,
Australia and Singapore are the homes of the major commodity exchanges.

The New York Mercantile Exchange (NYMEX):

NYMEX is the world’s largest exchange for the trade of physical goods. Its primary
products are precious metals and energy products. This exchange is in existence for the
last 132 years and is trading through two trading divisions. The NYMEX that trades in
the energy products and the platinum and the COMEX that deals in all the other metals.
Light sweet crude oil, Natural Gas, Heating Oil, Gasoline, RBOB Gasoline, Electricity

11
Propane, Gold, Silver, Copper, Aluminum, Platinum; Palladium, etc are traded on the
exchange.

London Metal Exchange:

This exchange was formed in 1877and is the worlds premier non ferrous metals
exchange. The objective of this exchange is to provide a market for the participants
from non ferrous metals related industries and to provide them a risk hedging against
price fluctuations. The exchange trades 24 hours a day through telephone and
electronic terminals. It still holds the open outcry trading on the floors as well. The
commodities traded are Aluminum, Copper, Nickel, Lead, Tin, Zinc, Aluminum Alloy,
North American Special Aluminum Alloy (NASAAC), Polypropylene, Linear Low Density
Polyethylene, etc.

CBOT:
It is one of the oldest exchanges on the world map. It was formed in 1848 by the
merchants of Chicago. More than 50 contracts are being offered on the exchange. This
exchange also holds the outcry trading and the primary commodities are agricultural
products like; , Soybean, Oil, Soybean meal, Wheat, Oats, Ethanol, Rough Rice and the
non agricultural products like gold and silver etc.

Tokyo Commodity Exchange: (TOCOM):

TOCOM is the 2nd largest commodity exchange in the world. It was formed about 20
years back. It has played an important role in benchmarking price discovery and risk
management in the Asian continent for the products like crude oil etc. the association of
TOCOM with MCX has provided a platform for the Asian investors Crude Oil since the
demand-supply situation in U.S. that drives NYMEX is different from demand-supply
situation in Asia. This step is taken for cooperation to benefit from the business and
investment opportunities. In Jan 2003 TOCOM became the first exchange in Japan to
introduce in house clearing system. In Jan 2004 TOCOM also launched the first gold
future contract in the Japanese commodity market. The commodities traded on the
exchange are; Gasoline, Kerosene, Crude Oil, Gold, Silver, Platinum, Aluminum,
Rubber, etc.

Chicago Mercantile Exchange:

The Chicago mercantile was formed in 1898 to trade in the agricultural products. The
Chicago Mercantile Exchange (CME) is the largest futures exchange in the US and the
largest futures clearing house in the world for futures and options trading. It introduced
the world’s first financial futures around 30 years ago. Today a huge volume of daily
trade depends upon the trade of interest rate futures, stock indices and foreign
exchange futures. Its financial products serve as the benchmarks and witness largest
open interest futures. Its products allow both the small family owned farms and the large
agricultural producers to hedge their risks against adverse price movements. The
commodities primarily traded on the exchange are; Butter milk, Timonium phosphate,

12
Feeder cattle, frozen pork bellies, Lean Hogs, Live cattle, Non-fat Dry Milk, Urea, Urea
Ammonium Nitrate, etc.

THE FUNCTIONING OF COMMODITY MARKETS:

In the commodities markets two types of trades take place the spot trade is one where
one party pays cash for the receipt of the commodity at the same time. The other type is
the future trading. It involves warehouse receipts. A person deposits a certain amount of
a good in the warehouse and receives a receipt against it. This receipt allows him to ask
for the delivery of a certain amount of the deposit good from the warehouse. But,
someone trading in commodity futures need not necessarily posses such a receipt to
strike a deal. Based on his expectations about the future prices one can buy or sell
commodity futures. In futures there is an expiry date; the date on which the buyer or
seller either closes his position or actually deliver or receive the goods. Another term
squaring off is used in futures trading. It means closing a position by an equal but
opposite contract. The broker keeps the record of the profit and loss of all dealing
13
parties from the changes in the future prices as the futures are daily marked to the
market. In the well developed commodity markets a seller must be able to deposit his
goods in a warehouse nearest to him and the buyer must be able to receive the goods
from nearest warehouse. But in Pakistan a very few warehouses are available and the
delivery of goods is difficult.

Following diagram gives a fair idea about working of the Commodity market:

In most of the commodity markets including Pakistan the trading system is fully
computerized and traders do not need to visit the commodity exchanges for speculation.
Hey can see the price board on the exchanges websites and make the sales or
purchases online on phone or internet through broker or individually themselves.

Steps of Commodity Trading System:

• Trading:
○ Order receiving
○ Execution
○ Matching
○ Reporting
○ Surveillance

14
 ○ Price limits
○ Position limits
• Clearing:
○ Matching
○ Registration
○ Clearing
○ Clearing limits
○ Notation
○ Margining
○ Price limits
○ Position limits
○ Clearing house
• Settlement:
○ Marking to market
○ Receipts and payments
○ Reporting
○ Delivery upon expiration or maturity.

HOW TO INVEST IN A NCEL:

An investor can start the business in the NCEL through any already member of the
exchange. Investors can also do the business with the help of a broker who can trade
on the floor of the exchange. The NCEL website gives the detail of the approved
members of the exchange. When an investor approaches the member the member asks
for an identity proof. For identity proof the investor can provide any one of the following
documents:

• NIC
• National driving license
• Passport

15
RULES AND REGULATIONS:
Broker:
The broker is a person of a firm who deals as a liaison between the commodity trader
and the exchange. The Commodity Broker is the member of Commodity Exchange,
having direct connection with the exchange to carry out all trades legally.

The following considerations should be in mind while selecting a broker:

• The market credibility of the brokerage firm

• The references
• The number of branches and franchises
• Credit facility
• The research team and appropriateness of the forecasts.

How to become a broker:

In exercise of the powers, conferred by section 33 of the Securities and Exchange

Ordinance, 1969 (XVII of 1969), no member can act as a broker to deal in the business
of commodity futures contract unless he is registered under the SEO rules from
section33.

Application for the registration as a broker:

• A member desirous to act as a broker shall make an application to the

commission in a form specified by the commission at different times, for grant of
a certificate of registration through the Exchange of which he is a member.
• A specific amount is also paid along with the submission of the form.
• The commission should forward the application within 14 days of its submission.

Eligibility for the broker:

A person shall be eligible under the following rules:

• He must be the member of the exchange

• He must be at least 21 years of age at the time of registration
• He must be a citizen of Pakistan
• He must be a minimum a graduate or equivalent at the time of registration. The
commission can provide relaxation for the education in special cases if the
applicant has experience.
• He must not be of unsound mind.
• He must not be convicted of any illegal behavior
• He must not insolvent
• He must have at least a five year experience in the trade of commodities, futures
or other financial instruments.

16
 • He must not have been the director of a company which is accused of a
brokerage offense.
• Has not defaulted in the payments of dues to clearing house of any exchange.
• Has not defaulted in compliance with the provisions of the Ordinance, the Act,
and the rules and regulations made hereunder;
• Has not defaulted in a settlement of an investor’s complaint where the complaint
has been considered by the exchange or any commission.
• He must have always complied with the directives of the commission in respect
of business conduct.
• He must have the minimum net worth as decide by the commission at different
times.
• He must remain in compliance with the above mentioned rules and should report
to the commission if he does not comply any more.
• Every applicant which is a corporate entity shall have at least one director who
will satisfy the requirements set forth under sub-rule (1) above.

Certificate of registration:

If the commission finds the applicant eligible to be registered as a broker and if it is in

the favor of the exchange and the commodity market, the commission grants a
certificate of registration the applicant which gives him a right to trade in the
commodities futures on NCEL in compliance with the exchange rules.

• The certificate remains valid for one year after the issuance.
• The commission should report the exchange about the issuance of the certificate.
• No application shall be rejected without giving an opportunity to the applicant to
be heard by the commission.
• The decision shall be communicated to the applicant as well as the concerned
Exchange within fourteen days of the last hearing given to the applicant, stating
therein the grounds for refusal.
• The applicant refused under the above rule can apply for the reconsideration of
the case within 30 days.

Any person whose application for the registration as a broker has been rejected by the
commission shall not deal in the trade of commodities on the exchange.

Renewal of registration:

The registration of the certification after the expiration is renewed by the commission for
the fees decided by the exchange by time to time. The commission re consider the
compliance with the eligibility criteria as mentioned above and renews the certification.

17
A member whose certificate expires should not deal with the trade of the commodities
futures on the exchange before the renewal of the certificate. The member whose
renewal is refused is also not allowed to trade in the exchange.

Suspension of the registration:

The commission can suspend the registration of the broker if it finds that the broker has:

• Failed to remain in compliance with any conditions subject to which certificate of

registration was granted.
• Failed to comply with any requirement of the Act or the ordinance or of any rules
or directions made or given there under
• Has not obeyed the rules of the exchange
• Failed to follow any code of conduct requirements
• Failed to furnish any information related to his transactions in Commodity Futures
Contract as may be required by the Commission
• failed to submit periodical returns
• Has disseminated wrong information
• Failed to settle an investors complaint
• Has been uncooperative in any enquiry conducted by the commission.
• Has been indulging in temporary price manipulations
• His financial position has been deteriorated and his function as a broker is no
more in the interest of the investors and the exchange
• Has been suspended by any exchange.

The commission may suspend the registration of the broker for a specified period or
charge him a fine not exceeding PKR 100,000 for any non compliance. The broker is a
given a chance to be heard before fining him or before a suspension.

Cancelation of the certificate by the commission:

If the commission finds under the above mentioned rules that the broker has been
involved in:

• Price manipulations and insider trading

• Guilty of any fraud
• Or did not comply with any of the directives of the commission

Then the commission can cancel the registration of the broker’s certificate in writing.

Automatic cancelation of the certificate:

A certificate of brokerage granted to a member is automatically cancelled if he:

• Ceases to be a Member of an Exchange

18
 • Is declared defaulter by an Exchange and is not re-admitted to Membership
within a period of six months from such declaration
• Surrenders Membership of an Exchange;
• Is declared insolvent by a Court;
• Voluntarily surrenders certificate of registration to the Commission; or
• Is wound up by an order passed by a Court.

Broker to clear liabilities:

If the certificate of the broker is suspended or permanently canceled on the decision of

the commission, the broker is responsible to clear all the obligations up to the date to
which he has worked as a broker.

General obligations and responsibilities:

The brokers shall be responsible to keep the record of the transactions as required by
the commission under the act.

Brokers to abide by the code of conduct:

Broker should abide by all the rules and should follow all the codes of conduct as
decided by the commission by time to time.

System Audit:
A broker shall go under an annual system audit by an authorized auditing firm approved
by the commission under the timely rules of the commission. The following audit firms
are approved by the commission:

CATEGORY A:

• A.F. Ferguson & Co.

State Life Building No. 1/C,

I.I. Chundrigar Road, Karachi.

Tel: 021-2426711-5, 2426682-5 Fax: 2415007, 2427938

• Anjum Asim Shahid Rahman

1st & 3rd Floors, Modern Motors House,

19
 Beaumont Road, Karachi 75530

Tel: 021-5672951, 55672956 Fax: 5688834

• Avais Hyder Liaquat Nauman

407, Progressive Plaza,Beaumont Road,

Karachi, 75530.

Telephone: (92-21) 565 5975-6, Fax :( 92-21) 565 5977

E-mail: office.khi@ahln.com.pk, lzca@khi.wol.net.pk

• BDO Ebrahim & Co.

2nd Floor, Block “C” Lakson Square

Building No. 1, Sarwar Shaheed Road, Karachi.

Tel: 021-5683030.5683189, Fax: 5684239

• Naveed Zafar Husain Jaffery & Co.

1st Floor Modern Motors House

Beaumount Road, Karachi.

Tel: 021-111-77–44-22 Fax#: (021) 5210626

Email: khi@shznco.com

• Hyder Bhimji & Co.

2nd Floor, Standard Insurance House,

I.I. Chundrigar Road, Karachi.

Tel: 021-2417585-7 Fax: 021-2423954

• Ilyas Saeed & Co.

A-4 Sea Breeze Homes, Shershah Block,

20
 New Garden Town, Lahore.

Tel: 042-5861852, 5868849, Fax: 5856145

E.Mail: milyas@brain.net.pk

• M. Yousuf Adil Saleem & Co.

Cavish Court, A-35, Block 7, KCHSU,

Shahrah-e-Faisal, Karachi.

Tel: 021-4541314, 111-55-2626

Fax: 021-45413

• Muniff Ziauddin & Co.

Business Executive Centre

F/17/3, Block 8, Clifton,

Karachi.

Tel: 021-5375127-29 Fax: 021-5820325

• Riaz Ahmed & Co.

10-B, Saint Mary Park, Main Boulevard,

Gulberg –III, Lahore-54660.

Tel: 042-5718137-39 Fax: 042-5714340

E-mail: racolhr@brain.net.pk

sarfrazm@brain.net.pk

• KPMG Taseer Hadi & Co.

21
 1st Floor, Sheikh Sultan Trust Building No. 2,

Beaumount Road, Karachi.

Tel: 021-5685847 Fax: 021-5685095

• Ford Rhodes Sidat Hyder & Co.

Room No.601-603, Progressive Plaza,

Beaumont Road,Karachi-75530

Phone #: 021-5650007-11

Fax #: 021-5681965

E. mail: frsh.khi@pk.ey.com

• Rahman Sarfaraz Rahim Iqbal Rafiq

54 – P, Gulberg II, P.O. Box No. 3054

Lahore – 54660

Phone # 042-5875965-68

Fax # 042-5758621

E. mail: alnasr@wol.net.pk

• Horwath Hussain Chaudhury & Co.

25/E Main Market, Gulberg-2, Lahore-54660

Tel: 042-5759223-5, 042-111-111-442

Fax: 042-5759226

E. mail: hhc@horwath.com.pk

CATEGORY B:

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• Hameed Ch. & Co.

H.M. House, 7 Bank Square, Lahore.

Tel: 042-7235084-7

Fax: 042-7235083

• Hameed Khan & Co.

16-A, Link Farid Kot Road,

Near A.G.Office, Lahore.

Tel: 042- 7234562-7239271

Fax: 042-7351851

• Ibrahim Sh. & Co.

259-260 Panorama Centre,

Fatima Jinnah Road, Saddar, Karachi.

Tel: 021-5210577-5673529

Fax: 021-5676591

• HLB Ijaz Tabussum & Co.

4th Floor Waheed Plaza, 52 West,

Jinnah Avenue, Blue Area, Islamabad.

Tel: 051-2825045, 2825090; Fax: 051-2825106

Email: adminstrator@ijaztabussum.com

Website: www.ijaztabussum.com

• Rahim Jan & Co.

F-103, Regency Plaza, Mini Market,

Gulberg-II, Lahore
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 Tel: 042- 758199, 5873896

Fax: 042-5873896

• Saeed Kamran Patel & Co.

2nd Floor, Buland Markaz,

33 Blue Area, Islamabad.

Tel: 051-270116-279658

Fax: 051-279658

• S.M. Masood & Co

2nd Floor, Empire Centre,

Main Boulevard, Gulberg, II

Lahore.

Tel: 042-5712554-5712557

Fax: 042- 5712556

• Zahid Jamil & Co.

356-A Al Jamil Plaza,

Ground Floor, Small “D” Ground

Peoples Colony, Faisalabad.

Tel: 041-725065-68 718166

Fax: 041-725070, E-mail: zahid@fsd.paknet.com.pk

• Riaz Ahmad, Saqib, Gohar & Co.

5 Nasim, C.H.S. Major Nazir Bhatti Road,

Off Shaheed-e-Millat Road, Karachi

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 Tel: 021-4945427- 4946112, 4931736

Fax: 021-4932629

• Haroon Zakaria & Co.

Room No. 211, 2nd Floor, Progressive Plaza,

Plot No. 5-CL-10, Civil Lines Quarter,

Beaumont Road, Karachi

Tel: 021-5674741-44,

Fax: 021-5674745 E-mail: info@hzco.com.pk

• Mushtaq & Co.

407 Commerce Centre,

Maulana Hasrat Mohani Road, Karachi.

Tel: 021- 2638521-4

Fax: 021-2639843

• Tariq Abdul Ghani & Co.,

Chartered Accountants,

173-W, Block-2, P.E.C.H.S, Karachi.

Phone: +92 21 34322582-3; +92 21-34322606-7

Fax: +92 21 34522492

CATEGORY C:

• Daudally Lalani & Co.

Suit No. 901, 9th floor,

Fortune Centre, 45-A, PECHS,

Block # 6, Shahrah-e-Faisal, Karachi

Tel: 021- 4389312-13,

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 Fax: 021- 4389315

• Fazal Mahmood & Co.

147 – Shadman -I, Lahore.

Tel: 042- 7576986-7580236

Fax: 042-7560971

• Rehman Iqbal Umar Iftikhar

F-6, Institution of Engineers

Zarghoon Road, Quetta.

Tel: (081)832546-832516

E-mail: hbui@paknet.com.pk

• Qavi & Co.

33 Rehman Court, Plaza Square,

Off: M.A. Jinnah Road, Karachi.

Tel: 021- 7720486 – 7733751

Fax: 021- 7727424

• Shahid Sami & Co.

Suit # 133, Hotel Metropole Building

Club RoadK, arachi-75520

Tel: 021-5661192-5215703

Fax: 021-5673940

• Moochhala Gangat & Co.

607 -610 Paradise Chamber,

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 Near Passport Office, off Shahrah-e-Iraq

Saddar, Karachi

Tel: 021-5212842, 5212769, 5693183

Fax: 021-5650453

• Baker Tilly Mehmood Idrees Qamar & Co.

103-104, Amber Estate Building,

Main Shaharah-e-Faisal,Karachi.

Tel: 021-4535712-13

Fax: 021-4546291

• M/s Rafaqat Mansha Mohsin Dossani Masoom & Co.

1. 3rd Floor, Sharjah Centre, 62-Shadman Market,Lahore

Phone: 042--7552728-29

Fax: 042 - 7552730

E-mail: Lahore@mmdk.com.pk

2. Suite 113, 3rd Floor, Hafeez Centre, A/34,

KCHS, Block 7 & 8, Shahrah-e-Faisal, Karachi.

Tel: 021- 4392361-62, 4396247

Fax: 021-4396247

E-mail: dossani@mmdk.com.pk

URL: http://www.mmdk.com.pk

• M/s Tariq Ayub , Anwar & Co.

First Floor, 84 –B -1, Ghalib Road,

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 Gulberg 111, Lahore-54660, Pakistan

Phone: 042-5872061-3

Fax: 042-5872060

E-mail: taac@accountant.com

• Nasir Javaid Maqsood Imran & Co.

OFFICE No. 27-B, 4th floor,Writer's Chamber

Mumtaz Hassan Road, Karachi.

Phone: +92 21 32420403 – 32419776

Fax: +92 21 32420408

E-mail: consult1@cyber.net.pk

Registration of commodity futures contract on NCEL:

Every commodity future shall be registered with the commission under the following
rules in order to be traded on the exchange:

• An exchange should submit an application to the commission for the registration

of a particular commodity future.
• If the commission finds that the application is eligible to the specified criteria as
per rules, it registers the standardized commodity future contract.
• If after the registration the commission finds some incompliance with the rules or
the application did not fulfill the requirements or if the future contract is no more
in the interest of the public then he commission orders the exchange to comply
with the standards and to fulfill all the requirements within a specific period of
time.
• Before rejecting the registration of a future contract the exchange shall be given
a chance to be heard by the commission.
• If the commission or exchange finds the trading of a standardized commodity
future contract not to be in the interest of traders it can suspend its trade for a
time period not exceeding 60 days and can suspend the trading time to time for a
period not more than 60 days.

Secrecy:

No person should disclose any information to any person or institution with out the
permission of the commission and to any person or institution which is not legally

28
entitled which he is entrusted, to which he had access or which he obtained for any
legal purpose.

Exchange trade prohibitions:

• No person shall directly or indirectly deal in any commodity future contract traded
on cleared on the exchange of which he or she is or has been an employee for
the last six months.
• No person shall deal directly or indirectly in the commodity underlying a future
contract if he has the information which is:
○ Not generally available
○ Would if it were so available, be likely to materially affect the price of such
Commodity Futures Contract
○ Relates to any such transaction underlying futures contract.

If any such transaction takes place the commission has the right to ask the responsible
person to pay off for the suffering persons.

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CURRENT SCENARIO OF NCEL:
Initially the NCEL started trading in the future contracts of gold and then in phases
different other commodities were introduced on the exchange for trading. Cotton yarn
was the second commodity to be traded on the exchange. Later on the 3rd phase the
rice was introduced. In the year 2005 the commission allowed the exchange to
introduce the future contracts in crude oil. Today the NCEL deals in 14 different types of
contracts in the commodities mentioned above in the introduction section. Promoting
the crude oil future contracts the chief of the NCEL Mr. Sameer in 2005 said that the
beneficiaries of the contracts would be the oil companies as they would be able to start
hedging on the imported orders of the oil products. Following the crude oil futures the
silver futures were introduced. The futures on the currencies are under process.

Technical set up:

KSE provides the technical set up for NCEL. Trading is also accommodated from the
other two stock exchanges and the universal online trading system from any part of
world just by a mouse click. The computerized system provides online market price
discovery system ensuring the best bid and offer for all market participants. Brokers are
provided the facilities of trading terminals at remote places, online market information
system, clearing and settlement and comprehensive risk management system by the
exchange as well.

Initially the NCEL started with the capital of 310million including initial paid up capital of
50million and 260million raised from the licensing of 260 brokers for 10million each. The
initial investment was from the three stock exchanges of which the major share is from
KSE i.e. 40%. Today many of the robust financial institutions, including National Bank of
Pakistan, Zaraei Taraqiyati Bank and Pak Kuwait investment co are the capital investors
of the NCEL as well.

Benefits to the Economy:

• The establishment of a regulated and centralized market has attracted
investments in the futures trading to offer new venues in for investment in
commodities. The gold prices were on a rise in the global market but due to the
absence of the NCEL the investors were unable to invest in gold because they
had to go to the Dubai market. “If gold was traded here it would have helped the

30
 investors as well as the country to maintain gold stocks through future trading”.
(M.D KSE and NCEL 2003, Moin Fidda).
• The establishment of the commodity exchange helped Pakistan to be the
regional center for gold as even India did not have gold future contracts in 2003.
• As the gold is available on international fair prices on the NCEL the smuggling of
gold has significantly decreased. (the concept, the image NCEL, PAGE Jan 13
2003, SYED M.ASLAM, )
• The exchange has offered hedging to the agricultural investors who were prone
to adverse weather conditions and prices from the very beginning.
• The risk hedging and market driven speculation has lead to fair pricing and price
competition.
• Cotton yarn has been the most important export of Pakistan and its future
contracts trading on the exchange will further enhance its exposure in the foreign
markets. It will benefit both the textile sector and the economy.
• The increase in the cost of production has increased the risk involved in the
textile sector. The hedging facility will help the textile millers to reduce their risk
and to attract investments.
• The open market allows the commodity prices to move by time to time. The
futures market will allow the investors to speculate and earn the profits.

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CONCLUSION:
NCEL the first commodity exchange in Pakistan has introduced the commodity futures
and a centralized and regulated market place for the investors. The NCEL has played
an important role in the development of the economy and the industry of Pakistan, as it
has attracted the investments in different commodities and industries from national and
international investors. The future contracts available for the above listed products have
increased their trading and the market access for their producers. To further improve
the economic conditions of Pakistan the NCEL needs to introduce some more
commodities and derivatives’ types.

RECOMMENDATIONS:
Pakistan is facing crisis in different basic commodities for last few years, like sugar
crisis and wheat crisis. The prices of other commodities like steel, copper, dairy and
poultry products are not fair and rising. NCEL needs to take steps to improve the
markets of these commodities as well.

• NCEL should introduce future contracts on sugar and wheat as well. It will help in
fair pricing and regulated trading of these commodities. It will also reduce the
smuggling of wheat to Afghanistan as the traders will get a fair price according to
the international trading in their market.
• The introduction of steel on NCEL will also attract investments in the industry and
the local industries will be motivated to produce as they will get internationally fair
prices. Our best friend and neighbor china is the biggest consumer of steel and
the NCEL will help to boost steel exports to India and china. It will improve
Pakistan’s BOP.
• To stabilize the dairy and poultry markets the NCEL should also introduce futures
on these products. It will motivate the investors to improve the production
technologies. They do not invest in improved dairy and poultry technologies
because of unfair pricing. As they will get fair prices and an open access to the
international markets, they will invest to increase the production and improve the
quality. Pakistan has 40million milking animals and America has only 4million
milking animals, even then USA is a net exporter of dairy products where as
Pakistan is a net importer. The only reason is low average production per animal
because of technological gaps. So there is a need to improve this market and
attract investments as it will also improve Pakistan economy
• The poultry and other livestock should also be included in the products list of
NCEL.

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