Pakistan Mercantile Exchange Commodity and Futures exchanges are now an integral part of financial markets world-wide. The Pakistan Mercantile Exchange (PMEX), which started its operations in May 2007, has shown exponential growth in the last four years and is well poised to take its rightful role in Pakistan's financial infrastructure over the next few years.
PMEX currently lists and trades contracts in Gold, Silver, Crude Oil, Rice, Palm Olein and KIBOR futures. During 2011 it expects to add Sugar, Wheat, Maize, Cotton and Currency contracts. In future years it will expand its offering to include industrial metals, chemicals and refined petroleum products.
Recent advances in technology are obliterating age old divisions between different markets and asset classes. Globally, over the past two decades, commodities have not only become an equal asset class along with equity, fixed income and currencies but have established a leading role in determining world growth. In line with developments in rest of the world, Pakistan also needs to improve its arcane market mechanisms, especially in Agriculture.
However, the need to improve market infrastructure is not just restricted to physical commodities; participation in and efficiency of bond and equity markets and their derivatives, is woefully inadequate for a country the size of Pakistan. Similarly, currency markets can be made more efficient by using modern trading practices. While banks and their subsidiaries are the major liquidity providers and participants in global markets, their participation in Pakistan is extremely poor due to various business and regulatory reasons.
Lessons learned from the recent global financial crisis point towards the superiority of exchange trading over OTC markets, as the former are formally regulated and have greater transparency and superior risk management.
There is a critical need in Pakistan for financial regulators and market participants to come together and agree on a roadmap for the development of financial markets within the broader framework of economic and institutional development.