2011

PAKISTAN MERCANTILE EXCHANGE

COURSE

Investment Banking and Security Analysis

SUBMITTED TO

Ms. Nabeela Naeem

SUBMITTED BY

Bilawal Soomro (9469)

1|Page

Pakistan Mercantile Exchange

Pakistan Mercantile Exchange (formerly National Commodity Exchange Limited) is the first technology driven, web-based demutualized commodity exchange in Pakistan. It is licensed and regulated by the Securities and Exchange Commission of Pakistan and has a 100 % Institutional shareholding. Pakistan Mercantile Exchange Limited started its operations in May 2007 as a fully electronic exchange with nationwide reach. PMEX is committed to provide a world-class commodity futures trading platform for market participants to trade in a wide spectrum of commodity derivatives, driven by best global practices, professionalism and transparency. Pakistan Mercantile Exchange is the first Exchange in Pakistan to employ modern risk management techniques based on Value-at-Risk with a pre-trade risk check in real time. The Exchange acts as a central counterparty to both buyers and sellers through a novation process and provide clearing & settlement on a T+0 basis using on-line bank transfer mechanism. Pakistan Mercantile Exchange has an Institutional shareholding and the shareholders include National Bank of Pakistan, Karachi Stock Exchange, Lahore Stock Exchange, Islamabad Stock Exchange, Pak Kuwait Investment Company (Pvt.) Limited, and Zarai Taraqiati Bank Ltd.Pakistan Mercantile Exchange recently changed its name from National Commodity Exchange Limited to better reflect its broad mandate and scope of activity to trade all types of futures contracts.

Vision and Mission

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

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

2|Page

Why Trade on PMEX

Only recognised platform for Futures Trading under law Regulated by SECP Guaranteed Settlement No Credit Risk Segregation of Funds Minimal Margin Requirements Direct Market Access / Ease of Trading Profit on Margin Account Balances

3|Page

Instruments traded on Pakistan Mercantile Exchange RICE

NCEL IRRI-6 Weekly Rice Futures Contract NCEL IRRI-6 Rice Futures Contract

PALM OIL

NCEL Palm Olein Futures Contract

GOLD

NCEL One Tola Gold Futures Contract 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 Kilo Gold Futures Contract NCEL Mini Gold Futures Contract NCEL Gold Futures Contract

SILVER

NCEL Silver (500 Ounces) Futures Contract

4|Page

CRUDE OIL

NCEL Crude Oil Futures Contract

INTEREST RATES

NCEL 3-Month KIBOR Futures Contract

5|Page

How to start Trading

1

Contact an PMEX registered broker Read and sign risk disclosure documents Broker opens trading account Difference between clients Payment of initial margins to broker Online transfer of margins to PMEX Ask for account statements from broker Verify that margins have been paid by PMEX Ask for training if using direct terminal Enter orders , monitor positions and pay margins

10

6|Page

Arbitrage Opportunity in Pakistan Mercantile Exchange

Product: Gold 100 Trading Date: 19th Sep Delivery Date: 19th Nov
Price: 58984 Price: 59012

Profit: 59012-58984= Rs 28 per tola

Determination of Price
NCEL issues daily reports at their website and so buyer and seller can easily determine the price and brokers also receive emails that they sent to the members so they can identify price easily and price also depends on dollar as well.

Issues in the Market

Lack of government interest. No advertisement. Lack of awareness. Lack of participation.

7|Page

Recommendations
NCEL lacks an effective awareness program for its target market which also includes farmers. Farmers of remote areas are illiterate therefore support centers need to be established in such areas. Introduction of commodity futures of sugar and wheat.

BIBLIOGRAPHY
www.pmex.com.pk

8|Page