Margin financing rules relaxed

SECP allows individuals to act as financiers.

ISLAMABAD:

The Securities and Exchange Commission of Pakistan (SECP), by amending Securities (Leveraged Markets and Pledging) Rules 2011, has eased cash margin requirements and allowed individual investors to participate as financiers in margin trading system in the capital market.

In an announcement on Wednesday, the SECP said the relaxation in rules, which were promulgated by the government in February, would provide relief to the market, which was suffering from an acute decline in trading volume.

Under the amended rules, the SECP has relaxed the earlier condition of depositing at least 25% equity participation in the form of ‘cash only’ by the borrowers. It will prescribe reduced minimum cash margin requirement while allowing a certain portion of the equity participation to be acceptable in shares of selected companies with necessary haircut for improved risk management.

Also, the restriction of only corporate bodies to act as financiers in the margin trading system has been waived and individuals meeting minimum eligibility criteria will be allowed to participate as financiers.

The amendments also remove the mandatory condition of prescribing minimum liquidity requirement for selecting securities eligible for margin financing. This will encourage more securities to be available for funding.

Published in The Express Tribune, December 29^th, 2011.