Developing market: KSE launches trial run of trading in govt securities

Small investors will be able to invest in T-bills, bonds and Sukuk.

KARACHI: The Karachi Stock Exchange (KSE) ‘soft launched’ trading in government debt securities on its Bond Automated Trading System (BATS) on Friday.

The soft launch will test the IT platform and post-execution settlement processes so that the formal launch by the finance minister, due in a few weeks, goes smoothly.

Trading in government bonds on the open market will allow an average saver and investor to invest directly in government securities such as treasury bills (T-bills), Pakistan Investment Bonds (PIB) and Islamic Sukuk Ijara Securities through their brokers. This would encourage greater savings while the secondary market will provide liquidity, enabling easy entry and exit for investors.

The trade executed and settled on Friday had five participants – AKD Securities, Arif Habib Securities, Bank Alfalah, JS Global and KASB Securities.

Speaking on the occasion, KSE Managing Director Nadeem Naqvi stated this was a major milestone in the development of capital markets in Pakistan and explained the details of the process of investing in government securities.

If an investor wants to invest in securities, all he has to do is to open a brokerage account (with a stock broker) and an investor portfolio securities account with the Central Depository Company (CDC).

Once the accounts are operational, the investor would need to deposit funds in the CDC’s designated bank account one day before trade (purchase) and ask the designated broker to purchase the type and rupee amount of bonds or bills. The broker, on the trade date, will execute the transaction after confirmation that funds are available at CDC.

At no stage in the transaction, the investor’s money or securities would be in the custody of the broker and these would be directly settled at the CDC. This method removes the intermediation risk for the investor.

Naqvi said the State Bank of Pakistan had allowed primary dealers (banks) to participate in the KSE’s government debt securities market.

He pointed out that a comprehensive investor awareness programme had already been undertaken by the Karachi, Lahore and Islamabad stock exchanges. Now the exchanges would weave the government security investment aspect into this programme and expand its reach and frequency so that larger number of savers is aware of the new facility for investment.

Published in The Express Tribune, February 1^st,  2014.

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