SECP committee’s recommendations on margin trading made public

Recommendations on the upcoming margin trading product have been made public by SECP.

Recommendations on the upcoming margin trading product have been made public by a committee of independent professionals constituted by the Securities and Exchange Commission of Pakistan (SECP). The committee was formed on June 10 and was mandated with suggesting changes to the draft Securities Act of 2010.

It has recommended some changes to the eligibility requirements for the margin trading product that will operate alongside a margin financing product. The committee has also suggested that participants should be allowed to pledge shares against margin requirements. Previously, the draft had envisioned acceptance of only cash margins.

According to a report prepared by BMA Capital securities, eligibility for margin trading will “be based on minimum free float of 35 per cent or 60 million shares, average daily turnover of more than one million shares and daily impact cost of less than one per cent on an order size of Rs500,000.”

The report also highlighted that all eligible securities will be reviewed on a monthly basis to decide whether they may remain available for margin trading. “Monthly changes in the list of securities eligible for margin trading could cause volatility in stock prices,” said BMA Capital’s Research Head, Hamad Aslam.

The SECP committee’s report on margin trading has recommended “inclusion of enhanced risk mitigation measures that also better address weak areas identified in the earlier leverage mechanism such as CFS MK-II.”

Market-wide margin trading for each security will be limited to the maximum of 20 per cent of the company’s free float or Rs10 billion. This suggestion is aimed at limiting undue concentration and manipulation of securities’ prices.

The committee also suggested that brokerage houses, mutual funds, asset management firms and other companies whose principal activities include short-term trading of securities; should not be eligible under margin trading. The committee also recommended an upper ceiling for the cost of margin financing at eight per cent above Karachi Interbank Offered Rate (Kibor), which will otherwise be market-driven.

Aziz Fida Husain Securities’ senior analyst Hasnain Asghar Ali noted that some first-tier stocks witnessed renewed activity during trade on Friday. He said that this could be an attempt to increase daily turnover in these stocks to ensure that they meet eligibility criteria for the new margin trading product.

BMA’s Hamad Aslam said that the committee comprised all relevant stakeholders, adding that a timely consensus between them increased the possibility of a launch of the product by the middle of August.

Director Public Relations for the Karachi Stock Exchange (KSE) Anita Mirza said that the KSE’s board of directors will convene on July 26 to deliberate on the recommendations of the committee. If the board of directors approves the recommendations, they will be forwarded to the SECP for final approval.

Published in The Express Tribune, July 24^th, 2010.

t hold -
�nl ����� with the provinces to win their confidence. An official of the provincial finance department said it seemed that the federal government was not serious in implementing the reformed GST. He said federal Finance Minister Hafeez Shaikh has not convened a single meeting with the Sindh government to resolve the issue.

The official said sometimes the tax related issues were informally sorted out between the Sindh representative and a tax consultant of the Finance Ministry. “Until and unless the federal government converts the understanding into decision, the exercise remains futile”.

The Federation’s stance is that the collection on goods and services cannot be separated under the proposed value added tax or the reformed GST but according to an informal understanding the input tax adjustments cannot be separated but the collection can be separated.

“The government has to take a decision as time is running out. We have deferred the matter of levying tax on services for three months not for an indefinite time period”, said the official.

The key services which may be taxed are construction and land improvement, trade, wholesale, trade retail, hotels and restaurants, railway, road, air, other and storage, communication, central monetary authority, scheduled and cooperative banks, other credit institutions, insurance, real estate services, ownership and dwellings, business services, public administration and defence, social and cultural services. The government is already taxing the telecom and banking services in the federal excise duty mode.

Published in The Express Tribune, July 24^th, 2010.