The stock market went down last week, but not due to changes in the margins regime that seems to have taken the back seat. This article is about the new risk management measures, which are likely to haunt the market after some time if not in the immediate future.
One of the simplest characteristics of the bourses all across the globe is that some investors make smart profits while others lose money in the speculative equity markets. But, there are some permanent profit-makers i.e. brokers and financiers who are always in a win-win position whether the markets are rising or falling.
The position of the financiers and brokers would become more secure than ever thanks to the SECP’s recently introduced revised Risk Management System (RMS) that was otherwise generally believed to protect the interests of investors, leading analysts observed.
After a detailed meeting with the stock exchanges management, the Securities and Exchange Commission of Pakistan (SECP) on Thursday enhanced the CFS limit to Rs 55 billion for Karachi Stock Exchange (KSE); Rs 10 billion for Lahore Stock Exchange (LSE) and Rs 5 billion for the Islamabad Stock Exchange (ISE) from November 6.
It also delayed implementation of value at risk (VAR) management system till December 4. It was also due to come into effect from November 6. The SECP and stock exchanges management also reached an amicable solution to VAR management system and institutional margining. The SECP team was headed by its chairman, Raziur Rehman Khan. He was assisted by securities market division commissioner Rashid I. Malik.
The Karachi Stock Exchange (KSE) would recommend Securities and Exchange Commission of Pakistan (SECP) to implement revised Risk Management System (RMS) gradually in various phases instead of implementing it fully and finally on November 06, 2006.
This was stated by Muhammad Yaqoob Memon, Deputy Managing Director KSE while responding to a question after a press briefing on ‘revised RMS’ here on Wednesday.
The KSE management would put forward this recommendation to SECP at a meeting to be held between the officials of the two regulatory bodies on Thursday (today), he said and added that the delegation would also propose extending the date for implementing the revised RMS.
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.
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