KARACHI, April 23: A consortium of 15 banks will pour in Rs20 billion into the stock market to help smooth transition from carryover transactions (COT) to more sophisticated and transparent margin financing. Members of the consortium include National Bank, Habib Bank, United Bank, Muslim Commercial Bank, Allied Bank, Faysal Bank, Metropolitan Bank, Union Bank, Bank Alfalah, Bank Al Habib, PICIC Commercial Bank, Saudi Pak Bank, Askari Bank, KASB Bank and Bolan Bank.

Heads of these banks told State Bank Governor Dr Ishrat Husain in a meeting held here on Saturday that they were ready to provide enough liquidity to the stock market to help it recover from the recent crisis and for smooth replacement of COT with margin financing by August 26 -— the new deadline set for this purpose, sources privy to the meeting informed Dawn. They said they had assured the SBP chief that they were willing to arrange funds even in addition to the promised Rs20 billion, if there was a need for it.

The SBP chief, who has just returned after attending the spring meetings of the World Bank and the IMF in Washington, has received instructions from Prime Minister Shaukat Aziz to seek greater involvement of banks in ending the stock market crisis.

Minister of State for Finance Omar Ayub Khan, SBP Deputy Governor Tawfiq A. Husain, SECP Chairman Dr Tariq Hassan and SECP Commissioner Shahid Ghaffar were also present. Later on, KSE Chairman Yasin Lakhani and other leading stock brokers also joined the meeting.

The KSE 100-share index, which had scaled a dizzying height of 10,303 on March 15, has fallen below the 7,000-point mark primarily on panic selling of some over-valued stocks, sending disturbing signals to both local as well as overseas investors.

The sources said participants of the meeting set up a committee and tasked it to provide regular feedback to the State Bank and the Securities and Exchange Commission of Pakistan and monthly reports on the progress made towards phasing out of COT or badla financing as it is called in brokers’ jargon with margin financing.

The sources said the heads of MCB, Faysal Bank, Bank Alfalah and Metropolitan Bank, KSE Chairman Yasin Lakhani, immediate past Chairman Arif Habib and a leading stock broker Amin Issa Tai and heads or representatives of Lahore and Islamabad stock exchanges would be members of the committee. They said the chairman of the committee was yet to be named, but added that given his seniority and experience, Metropolitan Bank President and former SBP Governor Kassim Parekh was the most likely candidate.

The committee will also identify the issues relating to bourses and banks that come in the way of introducing margin financing and get them resolved through their regulators -— the SBP and the SECP. Besides, it will create awareness among the stakeholders, particularly among small investors about the rules of business of margin financing and its benefits for them.

Bankers and stock brokers say if the banks inject Rs20 billion into the stock market — Rs7 billion in excess of the present COT commitments of Rs13 billion — this additional liquidity would eventually benefit those seeking margin financing. Besides, the replacement of COT with margin financing itself would free up to Rs10 billion worth of securities of stock brokers and make additional liquid securities available to the banks.

The sources said that the meeting also decided that while proving margin financing banks would get simultaneous delivery of stocks through Central Depository Company and National Clearing Company against payment. This will also benefit small brokers and people and firms seeking margin finance.

A press release issued by the SBP said that while speaking at the meeting, State Minister Omar Ayub apprised the participants about the important and critical role played by the capital market in the development of an economy. He said the government was fully committed to the reforms being undertaken by the regulators and his presence in the meeting was a solid demonstration of the will of the government to work closely with all the stakeholders for ensuring stability and development of the capital market.

The SECP chairman briefly apprised the meeting about the risk management measures and other reforms that have so far been undertaken for strengthening the capital market.