CFS cap raised to Rs55bn, badla banned

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.

Stocks futures decline

The stocks futures open interest at Karachi Stock Exchange fell during last week, and settled at Rs 15.3 billion on Friday, December 16, as selling in some scrips forced the investors to offload their positions.

Futures contract investment fell by Rs 0.75 billion from previous Friday’s (December 9) open interest of Rs 16.04 billion. The decline in open interest was caused by intra-day corrections during the week where equity prices used to rise in the early part of the trading session, only to see a great chunk of those gains wiped off by the end of the trading session.

More financing modes available at bourses

Investors at capital market after reaching the limit under Continuous Funding System (CFS) have more avenues to finance shares to purchase, like in-house badla, futures options and other derivatives, soon to be formulated.

After being effective from August 22, 2005, the CFS in 14 scrips has reached its upper limit of Rs 25 billion.

The response of the market to the announcements made after the meeting of brokers, SECP and Prime Minister, which included launching of CFS, launching of Pre-Trade Verification System and increased tenors for future contracts, was very positive and the KSE-100 index gained 278 points, with trading volumes increasing by 69 percent on day-to-day basis from less than 200 million to over 300 million shares.

More financing modes available at bourses

Investors at capital market after reaching the limit under Continuous Funding System (CFS) have more avenues to finance shares to purchase, like in-house badla, futures options and other derivatives, soon to be formulated.

After being effective from August 22, 2005, the CFS in 14 scrips has reached its upper limit of Rs 25 billion.

The response of the market to the announcements made after the meeting of brokers, SECP and Prime Minister, which included launching of CFS, launching of Pre-Trade Verification System and increased tenors for future contracts, was very positive and the KSE-100 index gained 278 points, with trading volumes increasing by 69 percent on day-to-day basis from less than 200 million to over 300 million shares.

Continuous funding system takes off

The continuous funding system (CFS) took off at the Karachi Stock Exchange on Monday with enthusiastic investor’s response, as the KSE-100 index gained 279 points. According to analysts, the CFS rate on Monday stood at 16.9 per cent with the level of investment at Rs16.3 billion.

KSE Chairman Yasin Lakhani told Dawn that the new system would fulfil the immediate liquidity need of the market and would create stability and restore confidence. He also said that the CFS would eliminate shortcomings in the badla system.

Body to give final shape to mode of stocks financing

The ‘Shaukat Tarin Committee’ will hold a meeting with all stakeholders of stock market on Thursday evening to give a final shape to a new mode of financing, in order to bring back investors to the lack-lustre stock market and improve liquidity.

According to sources, the Committee has improvised the recommendations to be placed with government officials expected to meet in Karachi on Friday, headed by Dr Salman Shah, Advisor to Prime Minister on Economic Affairs, and Omar Ayub Khan, State Minister for Finance.

Stock market needs Rs 30 billion to improve liquidity

Lack of appropriate system to change the traditional badla to margin financing dried up the volumes, forcing the market to trade in a narrow band, resulting in serious drain market liquidity. According to a report presented to Shaukat Tarin – led Committee on “Stock Market Liquidity”, the stock market is driven by liquidity flows.

In case of Pakistan too, this is equally true. When the implementation of changeover from the traditional badla to margin financing began, a lack of appropriate preparation resulted in liquidity crunch. This is a serious situation and needs to be addressed urgently.

Badla is not back!

I am grateful to The News for its backhanded support to the phase-out of badla financing in its editorial “Badla is back” (July 15) – a provocative and totally misleading title which suggests that badla financing had been eliminated and has now been reintroduced. This is simply not true. Even the inference that the process has been rolled back is false. Nonetheless, the editorial makes a very important point in favour of the phase-out of badla financing and, even though it is ostensibly critical of the role of the regulator, I appreciate the spirit behind it.

Badla is back!

A regulator is an umpire or judge and should behave like one. He is required to be neutral and come to a reasoned decision after examining the facts. And once he comes to that decision, he should stand firm. If he backs down, the system will fail to deliver.

But firmness doesn’t appear to be the strong point of the Securities and Exchange Commission of Pakistan. The Regulator had announced that margin financing is now on and that badla (brokers’ financing) would die a time-bound death. Stock-market investors were coming to terms with the situation and learning to play within their limits. While margin financing was becoming
acceptable to investors dealing in stocks, the Regulator changed his mind.

Banks to join National Clearing House: margin financing system mechanics decided

A nine-member committee has been formed to smooth the transition from COT (Badla) to margin financing. Comprising four bankers and five brokers, the committee would have former governor of the State Bank of Pakistan and now President of Metropolitan Bank, Kasim Parekh, as its chairman. In a series of meetings held at the State Bank of Pakistan Head Office on Saturday, chaired by the Governor of State Bank of Pakistan and attended by Minister of State for Finance Omar Ayub Khan and Chairman of Securities and Exchange Commission of Pakistan (SECP) Dr Tariq Hasan.