The Pakistan Stock Exchange (PSX) is preparing to launch Cash-Settled Futures (CSF) contracts, a move expected to strengthen the depth and sophistication of Pakistan’s derivatives market. Announced through a formal update on the exchange’s social media platforms, the introduction of CSF contracts marks a structural expansion in futures trading by offering a settlement mechanism that eliminates the need for physical delivery of underlying securities.
The new product has been designed to broaden participation in futures trading by introducing an instrument that is easier to manage for a wide range of market participants. Instead of requiring delivery of shares at contract maturity, the settlement for CSF contracts will take place entirely in cash on a T+1 basis. This mechanism is intended to lower operational hurdles, reduce counterparty risks associated with physical delivery, and increase trading efficiency for investors and institutions.
According to the specifications released by PSX, CSF contracts will be available on a defined set of eligible stocks determined through pre-approved criteria that are reviewed quarterly. This approach ensures that only sufficiently liquid and stable securities qualify for futures trading, maintaining market integrity and reducing the likelihood of excessive volatility.
The CSF contract structure comes with a standardized multiplier of 500 shares, although this may be adjusted in cases where corporate actions affect the underlying security. Contracts will be listed on the first trading day following the last Friday of every calendar month, with prices determined theoretically based on multiple indicators, including the closing price of the underlying stock, the Karachi Interbank Offered Rate (KIBOR), the number of days to maturity, and applicable spreads.
In terms of maturity, each CSF listing will include the spot month and the subsequent two calendar months, offering traders a range of short-term futures options. Contract symbols will follow a clear naming format, with standardized contracts labeled as StockTicker-CExpiryMonth and non-standardized versions using the StockTicker-CExpiryMonthNI structure. Each contract will be limited to a single lot size, allowing for straightforward entry and risk management.
The minimum price fluctuation is set at PKR 0.01, while circuit breakers will apply at PKR 1 or 10 percent, depending on which threshold is higher. Daily settlement prices will be determined using the Volume Weighted Average Price (VWAP) in the CSF market. In cases where no trades occur during a given session, the contract will rely on its theoretical price as the daily settlement benchmark.
Expiration will take place on the last Friday of each calendar month, with final settlement based on the underlying stock’s closing price in the ready market. Cash settlement will occur on a T+1 basis, ensuring quick closure of positions and efficient capital rotation for participants.
With the introduction of Cash-Settled Futures, PSX aims to foster a more dynamic derivatives environment, encourage broader investor participation, and align Pakistan’s market infrastructure with global trading standards. The launch represents a strategic step toward enhancing liquidity, improving risk management tools, and offering investors greater flexibility in navigating equity exposures.
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