Representatives of the Karachi, Lahore and Islamabad stock exchanges signed an agreement on Monday to formally commence trading in stock index futures contracts, with banking, oil and gas, and the Karachi Stock Exchange (KSE)-30 Index as underlying indices.

“The derivatives market constitutes 70% of the total trading volume in India. In Pakistan, it is less than 5%. Even if you include deliverable futures market, it is still less than 10%,” said KSE Managing Director Nadeem Naqvi, while speaking on the occasion.Trading of stock index futures contracts simply means buying or selling a specified number of futures contracts on a stock index. Its mark-to-market difference – or the current value of a futures contract – will be settled on a daily basis through the National Clearing Company of Pakistan’s standard pay-in-collect system.

“This product can be used for both hedging and taking view of the market from a trading perspective,” Naqvi noted.According to KSE General Manager for Market Development and New Products Sani-e-Mehmood Khan, stock index futures will be a typical exchange-traded product that will track the performance of the KSE-30 Index. “It will protect investors from adverse market movements, as it is envisaged as an important leveraged product based on the free-float of blue-chip stocks,” Khan said.