PAKISTAN MERCHANTILE EXCHANGE

Commodity Trading was introduced in Pakistan in 2007 by Pakistan Mercantile Exchange

Limited and since then, a new era of investments is emerged in the region. (PMEX) is Pakistan’s
first and only multi-commodity futures exchange. The Exchange offers a diverse range of
domestic and international commodities and financial futures. With a sophisticated
infrastructure and state-of-the-art technology, PMEX provides a complete suite of services i.e.
trading, clearing & settlement, custody as well as back office, all under one roof.
Though local investors had been trading in commodities internationally, PMEX is the first to
bring commodity trading here potentially. The institute is licensed and regulated by Securities
and Exchange Commission of Pakistan. PMEX has a promising goal to make commodity trading,
an easy investment venue for the investors. The spectrum of services provided to the buyers
and sellers is led by professionalism and transparency.
With limited commodities for trade, it is easy to keep an eye on all trading elements. The
commodities listed with PMEX are gold, silver, cotton, crude oil, palm, rice, sugar, wheat and
red chilli. The investor also has an option of trading in futures. No doubt it is a great investment
to make your savings into bundles.

VISION OF PMEX:
“To be amongst the leading mercantile exchanges of the region extending from Istanbul to
Jakarta in terms of knowledge, efficiency, innovation, value traded, credibility and standing.”

MISSION OF PMEX:
“To build and develop PMEX capacity to satisfy the diverse needs of our customers, contribute
towards shareholder’s equity and constantly endeavor to integrate national supply chains with
domestic and international Product, Commodity and Financial markets through innovative
financial products and instruments. Creating state of the art trading and settlement platforms
and infrastructure that engenders confidence, brings the domestic economic players to the
Exchange platform thereby creating maximum economic value for our stakeholders and the
country.”
CORE VALUES OF PMEX:
Merit: We value a culture of merit, inclusion and equality where everyone is offered a level
playing field to flourish regardless of their gender, family background, ethnicity, religion or any
other prejudice.
Candor: Speaking up for the betterment of the organization is encouraged at all levels as it
leads to transparency and fosters participation and a sense of ownership among all the team
members. At PMEX, we firmly believe that a collective decision is a better decision.
Respect: Respect for all signifies PMEX; it’s an all-encompassing attitude covering colleagues,
regulators, shareholders, clients and all other elements of the environment we operate in. It is
true that position in the hierarchy or an employee’s status may vary, but respect is constant for
everyone.
Integrity: Trust is the foundation of any relationship. Integrity to us is strengthening the trust of
our stakeholders by ensuring that all stakeholders are treated equally and fairly. We therefore
abide by the highest standards of ethics and veracity. We strictly believe in adhering to rules
and procedures, religiously fulfilling our commitments and protecting the confidentiality of our
clients’ information.
Transparency: We believe that we are accountable to our stakeholders and therefore must
remain transparent at all times. Our commitment to transparency and openness is vital for our
success. Therefore, when it comes to doing business, we go the extra mile to be eminent. We
welcome feedback, not only from our team members, but also from our business partners.
Innovation: We drive innovation in everything we do. With forward thinking approach, we
challenge assumptions, embrace change and continuously search for creative solutions which
bring value to our clients. In line with this perspective, we value creativity and ingenuity by
encouraging out-of-the-box thinking and unconventional solutions making the impossible
possible.

SHAREHOLDERS OF PMEX:
Its shareholders include National Bank of Pakistan, Pakistan Stock Exchange (PSX), LSE Financial
Services Limited, ISE Towers REIT Management Company Limited, Pak Kuwait Investment Co,
and Zarai Taraqiati Bank.
MEMBERSHIPS:
1) Universal Member: This membership entitles the Company to be able to offer trading
facility in all available commodity contracts. It is worth PKR 3.5 Mn.
2) Commodity Specific Member: A Commodity Specific Membership is based upon a
chosen commodity within which the member will be able to trade and offer trading
services for his clients. It is worth PKR 1 Mn.
INDICES:
US Equity NSDQ 100 Index Futures Contract
US Equity Industrial Index Futures Contract
US Equity 500 Index Futures Contract
Japan Equity Index

INTERNATIONAL AFFILIATIONS:
PMEX has acquired membership of leading global associations. By actively participating at these
forums, PMEX is not only keeping itself abreast of the new developments and policy issues
affecting the business but also learning from the experiences of other member countries. At
present, the Exchange is a member of the following international associations.
PMEX is having its international affiliations with the following:
1. Association of Futures Markets (AFM)
2. Futures Industry Association (FIA)

Other than this, PMEX has signed Collaboration Agreements (CA) with the following
international exchanges:

1. Bursa Istanbul
2. Izmir Commodity Exchange (ICE)
3. Dubai Gold & Commodities Exchange (DGCX)
4. Iran Mercantile Exchange (IME)
5. Dalian Commodity Exchange (DCE)
 6. Belarusian Universal Commodity Exchange (BUCE)

Cash Settled Physical Delivery

Gold 100 gram Contract Mini Gold Contract
Gold Kilo Contract Tola Gold Contract
Gold (50 & 100 Tola) Milli Tola Gold Contract
Gold 1 (oz, 10 oz & 100 oz US $
denominated)
Milli Ounce Gold Contracts in USD, EUR ,
GBP and JPY
Silver (5000, 500 oz,100 oz &10 oz Us $
denominated)
Copper (1,000 & 25,000 pounds)
Platinum (5 & 50 oz)
Palladium (100 oz)

Under these pacts, PMEX will work together with these exchanges to share information,
expertise and introduce staff training programs to learn from each other’s best practices and
experiences. Moreover, PMEX in association with these exchanges will consider hosting joint
events (such as conferences, seminars and workshops) with the common objective of improving
the knowledge of capital markets in their respective countries.

Energy
Cash Settled Physical Delivery
WTI Crude Oil (10, 100 & 1,000 barrel) US $
denominated
Brent Crude Oil (10, 100 & 1,000 barrel) US $
denominated
Natural Gas (1,000 & 10,000 MMBtu)

Agriculture
Cash Settled Physical Delivery
ICotton & 50K ICotton
Wheat
Soybean
Corn
Commodities like Red Chili and Sugar are only traded locally and were not found on the US
stock exchange as they are not traded internationally.
Equity Index
Cash Settled Physical Delivery
PMEX US Equity NSDQ 100 Index Futures
Contract
PMEX US Equity Industrial Index Futures
Contract
PMEX US Equity 500 Index Futures Contract
PMEX-US-Nikke-USD-1Index-Futures-
Contract
PMEX-US-Nikke-USD-5Index-Futures-
Contract

Upcoming Products
Cash Settled Physical Delivery
Gold (1 Gram, 5 Grams, 10 Grams, 1 Tola, 5
Tola, 10 Tola)

Liquid Contracts

Sr.No Contract Name

1
Brent 10
2
Brent 100
3
Crude 10
4
Crude 100
5
Copper
6
Gold 1 Oz
7
Gold 10 Oz
8
Gold 100 Oz
9
Silver 500 Oz
 10
Silver 100 Oz
11
Silver 10 Oz
12
Int’l Cotton
13
GOLD EUR/USD
14
GOLD GBP/USD
15
GOLD USD/JPY
16
GOLD AUD/USD
17
GOLD USD/CAD
18
GOLD USD/CHF
19
PLATINUM (5 OZ)
20
PLATINUM (50 OZ)

21
NATURAL GAS (10,000 mmbtu)

22
NATURAL GAS (1000 mmbtu)

The data of future prices is taken from investing.com of US market and data for spot prices is
taken from brecorder.com.
https://www.investing.com/
https://www.brecorder.com/exchange-rates/
BASIS RISK:

We have calculated the variance of basis risk of each of the commodity as listed below in the
table. The lowest basis risk variance can be seen of natural gas indicating less volitailty between
spot and future prices and the highest basis risk variance can be seen in gold.

commodity basis risk variance

Natural Gas 0.000167
Copper 0.000206
Silver 0.016662
Cotton 0.270924
Wheat 1.9583
SoyaBean 2.39375
Crude Oil 6.4819
Corn 24.89375
Gold 141.5756

CORRELATION:
 Copper correlation with other commodities futures:
are shown in the following table. Copper has the highest negative correlation with the Corn so it
can better be hedged with Corn.
Commodity Correlation
Corn -0.876713
Wheat -0.8159467
Natural Gas -0.2238376
 Cotton 0.11592775
Crude oil 0.19712347
Soya Bean 0.46606538
Silver 0.50258306
Gold 0.66494205

 Cotton correlation with other commodities futures:

are shown in the following table. Cotton has the highest negative correlation with the Silver so it
can better be hedged with Silver.
Commodity Correlation
Silver -0.1451686
Corn -0.1057735
Wheat -0.0985851
Natural Gas -0.0441513
Copper 0.10370916
Gold 0.16638171
Soya BEan 0.61808055
Crude oil 0.72460758

 Soya Bean correlation with other commodities futures:

are shown in the following table. Soya Bean has the highest negative correlation with the Natural
GAs so it can better be hedged with Natural Gas.
Commodity Correlation
Natural Gas -0.8831213
Corn 0.0398137
Wheat 0.17009075
Copper 0.45853804
Cotton 0.53929424
 Crude oil 0.65927936
Silver 0.68387779
Gold 0.79087158

 Corn correlation with other commodities futures:

are shown in the following table. Corn has the highest negative correlation with the Copper so it
can better be hedged with Copper.
Commodity Correlation
Copper -0.7980701
Crude oil -0.6320434
Gold -0.3683035
Silver -0.0942309
Cotton 0.0581136
Soyabean 0.08734326
Natural Gas 0.31885727
Wheat 0.97672908

 Natural Gas correlation with other commodities futures:

are shown in the following table. Natural gas has the highest negative correlation with the Soya
Bean so it can better be hedged with Soya Bean.
Commodity Correlation
Soya bean -0.8786484
Silver -0.4315951
Gold -0.4023157
Crude oil -0.2374063
Copper -0.2358594
Cotton -0.0536538
Wheat 0.35945916
 Corn 0.47629188

 Gold correlation with other commodities futures:

are shown in the following table. Gold has the highest negative correlation with the Corn so it
can better be hedged with Natural gas.

Commodity Correlation
Natural Gas -0.3794054
Crude oil -0.1878871
Cotton 0.04645291
Corn 0.21569547
Wheat 0.30530645
Silver 0.48506664
Copper 0.62621521
Soya Bean 0.85801108

 Silver correlation with other commodities futures:

are shown in the following table. Silver has the highest negative correlation with the Natural gas
so it can better be hedged with Natural gas.
Commodity Correlation
Natural Gas -0.4024958
Crude oil -0.3325039
Cotton -0.2755042
Gold 0.3832505
Corn 0.46781957
Copper 0.50445956
Soya BEan 0.74572776
Wheat 0.77678242
  Crude Oil correlation with other commodities futures:
are shown in the following table. Crude Oil has the highest negative correlation with the Wheat it
can better be hedged with Wheat.
Commodity Correlation
Wheat -0.7624843
Corn -0.7487359
Silver -0.4316924
Natural Gas -0.1466633
Gold -0.0467123
Copper 0.15529811
Soya Bean 0.57102046
Cotton 0.70375434

 Wheat correlation with other commodities futures:

are shown in the following table. Wheat has the highest negative correlation with the copper it
can better be hedged with Copper.
Commodity Correlation
Copper -0.8099144
Crude Oil -0.6523193
Cotton -0.1301344
Soya Bean 0.10942025
Gold 0.32284577
Natural Gas 0.32875633
Silver 0.82480971
Corn 0.98594167
The Optimal hedge ratio with optimal number of contracts needed
A hedge ratio is the ratio of exposure to a hedging instrument to the value of the hedged asset.
Hedge ratio is an important statistic in risk management because it tells us the extent to which
the risk of any adverse movement in our asset or liability will be met by any offsetting
movement in the hedging instrument. Since futures contracts are never 100% effective as
hedging instruments, businesses aiming to use them for risk coverage purposes use the optimal
hedge ratio formula to select the most appropriate futures contract and the number of contracts
needed to protect the full extent of the company asset or liability.
To find the number of contracts through optimal hedge ratio, we have assumed $50,000 to be the
hedging amount and 100 to be contract size of the future.