Government promulgates Securities Rules 2011
“The introduction of margin trading system (MTS) at the local stock exchanges will take place by the end of this month,” confirmed SECP Head of Internal and External Communications Shakeel Chaudry. The approval brings to a close months of anticipation for stakeholders in the country’s equity markets that have been functioning without any leverage product since 2008.
“The implementation will be completed within the next couple of weeks,” National Clearing Company of Pakistan Limited (NCCPL) Head of Operations Badiuddin Akber told The Express Tribune.
“Central Depository Company, NCCPL and the three stock exchanges will issue their formal approvals for the Securities Rules 2011 within the next few days and once that is done the launch date will be formally announced,” explained Badiuddin.
The NCCPL official gave the first detailed presentation of the margin trading system to stakeholders at Karachi Stock Exchange (KSE) on Friday. Badiuddin added: “the same presentation will be repeated on Monday and all those interested in learning more about the system that is about to be implemented are welcome to attend it at the KSE auditorium at 3:45pm”.
The platform for MTS will be provided by NCCPL which will collect marked-to-market losses on a daily basis from those receiving financing for the purchase of equities and will in turn pay the respective financiers on a daily basis.
The maximum rate of mark-up that can be charged in the MTS market has been fixed at Kibor plus eight per cent. In order to limit risk in the system, exposure margins, concentration margins and liquidity margins have been introduced while capital adequacy limits and position limits have also been set for prospective financers.
Besides stock brokers, banking companies, financial institutions, collective investment schemes and investment finance companies have been declared eligible for applying to become financiers. However, separate criteria for the qualification of each type of entity have also been laid down. Margin trading will only be allowed in those equities that are approved by the NCCPL in consultation with the three stock exchanges.
Further, any changes in the list of eligible equities will be announced 30 days prior to the implementation of the amendment. According to the freshly promulgated rules, financing participation ration must be at least 25 per cent, or value at risk (VaR). “These are impressive developments for equities trade and market participants will be more optimistic about future prospects in coming days,” said Arif Habib Investments, Director, Ehsan Mehanti.
“The availability of leverage will allow better participation of retail investors and once volumes pick up, the quantum of foreign investments may also respond positively,” added Mehanti.
Published in The Express Tribune, February 19th, 2011.
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