Pakistan Stock Exchange Prepares to Launch Cash-Settled Futures Contracts

The Pakistan Stock Exchange (PSX) is preparing to launch cash-settled futures contracts following tests scheduled to be conducted by March. The newly appointed Managing Director of the Pakistan Exchange, Farrukh H. Sabzwari, stated, "Our first product on the table will be cash-settled futures, followed by options." Sabzwari noted that this move is expected to enhance derivatives trading in one of the world's top-performing stock markets this year.

Currently, PSX offers deliverable futures, which require open positions to be settled either through the seller delivering shares or the buyer receiving them at expiration. However, traders prefer cash-settled futures due to lower capital requirements. This shift is anticipated to improve liquidity, which tends to lean towards institutional activity as contracts approach expiration due to delivery-related transactions. The Pakistan stock index, KSE-100, has appreciated by 170% over the past 18 months.