Continuous Funding System (CFS) cap has been enhanced to Rs55 billion from Rs24.5 billion for Karachi Stock Exchange.
The new CFS cap for Lahore Stock Exchange has been enhanced to Rs10 billion and Rs5 billion for Islamabad Stock Exchange, with effect from October 2, 2006. The decision was announced following a meeting between SECP and management of three exchanges here on Monday.
Reviewing the August 02, 2006 decision taken by SECP, the meeting observed that work on SECP’s proposal regarding CFS MK II was underway. However, to improve the risk management system and reduce the systemic risks associated with the existing CFS as well as in-house badla financing, it was important to take certain measures in the interest of the market for an interim period, a statement issued by SECP said.
While improving the CFS cap, simultaneously, SECP put ban on in house financing (badla) with effect from the same day of implementing enhanced CFS cap. In the context of in-house badla, the meeting noted that not only the same was non-transparent, but also the scrips financed under this system were more risky and prone to market manipulation besides having excessive rates of financing.
In view of the above meetings and market feedback, the Commission decided to prohibit in house financing. The Commission also approved to increase the number of CFS facilitating scrips to approximately 45. Prior to this meeting, it was common understanding that SECP would reduce the number of CFS funding scrips to 14 from 32 allowed at present.
The CFS premium rate was caped at 18 per cent at the three exchanges with effect from October 2, 2006. Moreover, interim risk management regime as proposed by SECP vide letter dated August 30, 2006, would be applicable from October 2, 2006; Margining regime and valuation of securities deposited for exposure purposes based on Value at Risk (VaR) would be applied in all markets from November 1, and client level netting would be applicable from January 1, 2007.
Therefore, the eligibility criteria for CFS facilitating scrips was determined as:
a) Companies should have Average Daily Impact Cost of less than one per cent, based on previous 3 months daily impact costs.
b) Companies should have traded on more than 90 per cent of trading days during the past 3 months.
c) Companies with a Free Float of more than 20 per cent of issued capital or where the free float is more than 190 million shares whichever is lower.
d) Free-float of the company must be in dematerialised form on CDS.
The measures taken at the meeting were for the interim period. In the short term, the SECP expects to introduce multiple products for supporting the leveraged trading.
Source: The News
