KARACHI, July 14: The Advisor to the Prime Minister on Finance Dr. Salman Shah and Minister of State for Finance Mr. Omar Ayub Khan will meet top bankers, and heads of bourses at the State Bank on Saturday to sort out issues in margin financing. A row between banks and bourses over the availability of margin finance forced the Securities & Exchange Commission of Pakistan to suspend from Monday the proposed phase-out of badla financing and cap it at Rs12 billion.
The SECP took this decision on the request of stock exchanges and small investors citing the reason that margin financing had not been developed to the desired level. The bourses’ regulator capped badla financing or conventional carry-over-trade (COT) at Rs12 billion for the time being. That paved the way for continuation of COT in seven leading scrips that were yet to switch over from COT to margin financing. The scrips included PTCL, OGDC, PSO, NBP, POL, DGKC and Hubco.
Whereas banks claim they have arranged Rs18.4 billion worth of credit line for those who want to avail margin financing to get rid of badla finance, the top management of bourses disputes this claim and says that banks have arranged less than five per cent of the promised Rs20 billion for margin financing.
“The Saturday meeting would discuss ways to ensure that margin financing replaces badla finance — and sort out issues in this regard,” said Mr Shaukat Tarin who heads a bankers’ committee on margin finance. He said all the fifteen banks that had promised credit lines for margin finance and heads of all the three stock exchanges would attend the meeting. Deputy Governor of SBP Mr. Tawfiq A. Husain and SECP Chairman Dr. Tariq Hasan would also be present at the meeting. Advisor to the PM on Finance Dr. Salman Shah will be in the chair.
KSE Decision: Meanwhile, the board of directors of the Karachi Stock Exchange resolved at a meeting held here on Thursday that the COT phase-out, as already decided “shall remain suspended and COT trading presently in seven scrips shall continue without capping or restrictions on volumes from Monday, July 18.” The board further resolved that COT in all the 27 futures scrips “shall be available subsequently for COT trading at a date to be notified later.”
According to a press release, the KSE board of directors decided that COT and margin financing “shall continue and run parallel through the NCCPL (National Clearing Company of Pakistan) system in these scrips.” The mother-bourse of Pakistan also decided that the choice of availing the finance through COT or margin financing “shall be left to the investors to tap the most competitive market.”
Financial analysts of leading brokerage houses pointed out that the KSE made the above moves keeping in view the fact that the last week’s decision of the SECP to suspend COT phase-out had not helped the market recover —- the market had rather witnessed a further fall.
“Perhaps the KSE has taken fresh steps realising this very fact,” said Mr. Mohammed Sohail, head of research at brokerage Jahangir Siddiqui Capital Markets.
Stockbrokers believe that the decisions taken by the KSE board of directors should enliven the market but some of them fear that the decisions might further delay the replacement of badla finance with margin financing. Originally, conventional badla finance was to be replaced by more transparent and market-based margin financing by August 26, 2005. But “if the KSE says that the choice of availing COT or margin financing be left to the investors, then not many will opt for the later,” commented a senior stockbroker who declined to be named.
He also pointed out that this issue might feature prominently at the roundtable meeting of bourses, banks, and the SECP officials on Saturday. A senior banker, while commenting upon the KSE decisions, said the decisions seemed to have been taken without consulting the SECP and feared that they would delay the implementation of margin financing.
The KSE-100 share index continued falling throughout this week despite the SECP decision of suspending COT phase-out and slipped below the psychologically important barrier of 7500 on Thursday. The KSE index closed around 7472 on Thursday down from the weekend level of 7589 losing 117 points or more than 1.5 per cent in the last four days. This eroded market capitalization by Rs22 billion to about Rs2088 billion on Thursday from Rs2110 billion on last weekend.
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