Stock market gearing up for MSCI inclusion day

Reduces time required to confirm large trade orders, increases staff at commercial banks

KARACHI: The Pakistan Stock Exchange (PSX) has taken at least four measures to boost liquidity in the system, as it looks to smoothly settle expected trade orders worth $1.25-1.5 billion on June 1, 2017, a senior PSX official told The Express Tribune on Monday.

The PSX is all set to be upgraded into the MSCI Emerging Markets Index from Frontier Market Index on Thursday (June 1). The day is likely to see trade orders worth $1.25-1.5 billion, eight-times higher from the usual $150-180 million on average.



The market is expected to see the post MSCI EMI buying from Tuesday (May 30) onwards keeping in view the T+2 settlement system.

Institutional delivery system

The PSX has reduced the time to confirm large trade orders to 10-15 minutes from around 1-2 hours. Institutions are the ones who usually place larger orders. They are dealt through the Institutional Delivery System (IDS), the official told on condition of anonymity.

“The reduction in time to minutes would not keep brokers’ funds stuck into the system and would allow them to accept larger trade orders,” he said.

Real Time Gross System

The State Bank of Pakistan has also asked commercial banks to increase availability of their staff for about three-four days around June 1.

There are only three banks in Pakistan that deal with foreign investors at PSX. These are Deutsche Bank, Citibank and Standard Chartered Bank. The staff at these three banks would be available at 8am, almost 1.15-hours before the market opens during these three-four ‘heavy’ days.

In that time span, bank staffers would keep trade orders from foreign investors processed and as soon as the market opens the orders would be executed.

Similarly, the banks’ staff would remain available by 3:30pm instead of their off-time at 1pm during Ramazan.

“Their increased availability would keep their Real Time Gross [settlement] System smooth and help the PSX deal with larger trader orders,” he said.

Post-close session

The PSX has extended the duration of trading sessions by 15 minutes. The additional 15 minute-session has been named as the Post-Close Session.

The Post-Close Session shall begin 30 minutes after the regular market, wherein trading shall take place only at the closing price.

“Most passive fund managers want to buy shares at closing prices. The Post-Close Session would meet their desires,” he said.

Closing prices

The stock market has also changed formula to calculate the closing share price for a brief period from May 26 to June 2, 2017.

The closing price for all shares shall be the average price of the last two hours.

“The change in pricing is made to avoid manipulation in closing prices. No one can keep manipulating prices for two hours,” the official said.

The changes have been taken keeping in view experiences in the UAE and Qatar markets.

“The UAE stock market froze on the first day of return after foreign funds placed huge buying orders,” he said.

The expected exorbitant trade orders would mostly come from foreign investors, particularly passive foreign funds, who track MSCI EM with $1.4-1.7 trillion in hand.



Foreigners are estimated to invest the entire allocated amount set aside for Pakistani names MSCI EMI on the first day of its upgrade.

“The PSX is expecting foreigners to invest $300-400 million on the day,” he said.

Published in The Express Tribune, May 30^th, 2017.

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