Interview with Mr. Ejaz Ali Shah — Managing Director, Pakistan Mercantile Exchange Limited (PMEX)
Mr. Ejaz Ali Shah is the Managing Director of Pakistan Mercantile Exchange Limited. He has over two decades of diversified experience in the financial markets of the country.
Previously, he served for 16 years as General Manager at Central Depository Company of Pakistan Limited (CDC). As a part of CDC’s founding team, Mr. Shah played a vital role in developing, positioning and nurturing CDC as a diversified service provider in Pakistan.
Before CDC, Mr. Shah has served in Cordoba Corporation, USA and Fidelity Investment Bank Limited, Pakistan. He also served as the National Chair for International Public Relations Association (IPRA) for the years 2010-11.
PAGE: Briefly tell us about the progress of the Exchange since commencement of its operations.
Ejaz Ali Shah: Pakistan Mercantile Exchange Limited (PMEX) commenced operations in 2007. The history, spread over 13 years, may look brief, but it is eventful. Over the years, the Exchange has navigated through challenging times and positioned itself as a robust national institution of the country. It has remained committed to an overarching goal of developing an innovative and sustainable ecosystem for the agricultural commodities by linking itself to the local economy, which enables growth and economic progress.
Over the last five years, PMEX has made steady and significant progress, setting the foundation for next phase of growth. The Exchange has streamlined around several initiatives. These included upgradation of technology, expansion of product suite, enhancement of customer services, introduction of direct collection and payment model for traders, induction of new members and liquidity providers and expansion of footprint by opening branch offices in Islamabad and Lahore. Other measures included strengthening risk management regime, forging strategic alliances with international futures exchanges and creating awareness about futures trading. This has resulted into an active partaking of market participants leading to record profitability for the Exchange along with exponential growth in trading volume.
PAGE: Tell us about the recent record financial performance of the Exchange.
Ejaz Ali Shah: I am delighted to inform you that PMEX has posted the highest-ever profit after tax for the financial year ended June 30, 2019 (FY19), since commencement of its operations in 2007. The Exchange has earned profit after tax of PKR 52.347 million for the FY19. The operating income of the Exchange grew to PKR 318.976 million for the year under review from PKR 264.607 million posted for FY18, registering an increase of over 20.55 percent. The trading volume for FY19 was recorded at PKR 2.912 trillion as compared to PKR 1.442 trillion for FY18.
PAGE: PMEX has recently introduced Direct Collection and Payment Model for Traders. Please tell us about the salient features of this model.
Ejaz Ali Shah: To mitigate risks related to client funds handling and increase clients’ confidence in futures market, the Exchange has introduced Direct Fund Model. The model empowers the clients to handle the cash themselves instead of going through the broker(s) for funds collection and withdrawal. According to this model, the clients directly deposit funds into their PMEX account and withdrawals are being directly credited into client bank accounts.
To maintain the sanctity of the clients’ information and curb misuse of funds, the Exchange has incorporated additional features i.e. security checks and alerts in cash collection and withdrawal processes. These checks include approval of profile by the client, tagging of IBAN, email and mobile number to a single UIN and system generated SMS/email alerts for each trade and funds movement.
This is an extremely important initiative for the development of the futures industry as it will help in bringing more investors/traders on to the Exchange platform.
Pakistan Mercantile Exchange Limited (PMEX) is country’s first and only multi-commodity futures exchange, which is licensed and regulated by the Securities and Exchange Commission of Pakistan (SECP). Shareholders of PMEX include National Bank of Pakistan (NBP), Pakistan Stock Exchange Limited (PSX), ISE Towers REIT Management Company Limited, LSE Financial Services Limited, Pak Brunei Investment Company Limited, Zarai Taraqiati Bank Limited and Pak Kuwait Investment Company Limited.
The Exchange offers a diverse range of domestic and international commodities and financial futures. With a sophisticated infrastructure based on state-of-the-art technology, PMEX provides a complete suite of services i.e. trading, clearing and settlement, custody as well as back office, all under one roof.
PMEX’s international affiliations include Memberships of Association of Futures Markets (AFM), Hungary & Futures Industry Association (FIA), USA and Memorandum of Understanding (MoUs) with Borsa Istanbul, Izmir Commodity Exchange, Dubai Gold & Commodity Exchange, Iran Mercantile Exchange, Dalian Commodity Exchange and Belarusian Universal Commodity Exchange.
PAGE: Pakistan has an agro-based economy. Does PMEX plan to introduce any product for the benefit of growers, traders and investors of the agri commodities?
Ejaz Ali Shah: PMEX is working on developing Pakistan’s first international online trading platform under the name of Global Trading Platform (GTP). The objective of the platform is to showcase country’s premium quality agri and non-agri commodities to the international market. GTP will function as a one window solution, which would allow the international buyers to purchase the desired quality produce with convenience and have it delivered anywhere around the globe. The Exchange is confident that establishment of GTP will transform the local commodity markets by linking producers directly to the international market, improve price discovery, reduce transaction costs and increase Pakistan’s agricultural exports.
PAGE: What efforts are being made to bring trading of physical gold at PMEX platform?
Ejaz Ali Shah: At present, the gold sector in Pakistan is grossly undocumented. The local demand is met through recycling and import of gold. Although it is officially allowed to import gold, however, import procedure lacks clarity. This has kept the official import of gold to a negligible level and the demand is met through undocumented sources.
In order to properly document the gold trade and reinvigorate the gold industry within the industry, a new ecosystem is required. PMEX feels that it can play a significant role in streamlining the gold industry in the country and has had various sessions with the stakeholders to come up with an efficient and viable system covering import of gold and developing its retail market through PMEX.
Keeping in view the above and international precedence, the Exchange is determined to actively work on the proposed plan i.e. to use the Exchange platform for import and retail sales of gold within the country. The Exchange is currently in the process of negotiating the operational modalities of the proposed model with the key stakeholders and regulatory authorities.
The Exchange is confident that once the proposed model is in place, it will yield tremendous benefits including documentation of gold trade leading to a full-fledged gold-backed investment industry in the country.
PAGE: The Government of Pakistan is proactively seeking to enhance lending to small farmers through Electronic Warehouse Receipt. What role is being envisaged for PMEX?
Ejaz Ali Shah: It expected that Pakistan’s first CMC would be operational by the end of this fiscal year. Once the CMC becomes fully operational, Electronic Warehouse Receipt (EWR) will be issued as a proof of storage of commodity with certified quality and quantity held at an accredited warehouse. These EWRs will then be used by farmers for obtaining financing from the financial institutions, as well as, trading at Pakistan Mercantile Exchange (PMEX).
Against this backdrop, the Exchange will integrate its system with CMC to offer an end-to-end trading facility to the farmers. Once EWR is traded at the Exchange, the ownership will be automatically transferred to the buyer in the systems. The buyer will be eligible to take physical delivery of commodity from the respective warehouse. Additionally, the trading of EWRs will give an extra comfort to the financial institutions, as they would be able to easily liquidate EWRs through PMEX in case of any default by the borrower. Moreover, the Exchange will design deliverable futures contracts based on EWRs thereby creating more avenues for the stakeholders.
The ecosystem for EWR will be a game changer in revolutionizing the agriculture landscape of the country. It is expected that the ecosystem will reap myriad of benefits for all key stakeholders. First, it would enhance farmers’ access to agricultural credit and improve their profitability. Second, it would help the Government in documenting the agricultural sector resulting in enhancing the tax-net, grading and standardization of commodities, reducing post-harvest losses and improving the country’s food security. Third, it would help banks in mitigating risks by allowing agricultural commodity as an alternate collateral. Fourth, it would encourage investors to set up high-standard warehouses throughout the country. Lastly, this ecosystem would also play an imperative role for PMEX in materializing its vision of bringing trading of all local agri-commodities on its platform and showcasing them to the international market.
PAGE: What role the Exchange is playing in creating awareness of futures trading in Pakistan?
Ejaz Ali Shah: PMEX regularly organizes awareness and training sessions and participates in workshops and seminars. The aim of these interactive awareness sessions is to empower the participants to become responsible, knowledgeable and intelligent investors. These sessions brief the participants about the benefits of futures trading at a regulated platform, role of the Exchange, trading systems, existing and upcoming products, trading procedure and guidelines followed by Q&A sessions.
Moreover, the Exchange publishes quarterly newsletter and daily & monthly commodity reports, which brief members and existing as well as potential investors about PMEX’s systems, products, latest developments and trading highlights.